Inflows into equity mutual funds saw a 16 per cent decline in March compared with February with analysts attributing the decline to a correction in the small- and mid-cap segments following the publication of stress test results last month by mutual funds leading to investors adjusting their portfolio.

Data from Amfi shows equity inflows during the month were Rs 22,633.15 crore compared with Rs 26,865.78 crore in February and Rs 20,534.21 crore in March 2023. Small-cap funds witnessed outflows for the first time in 30 months with a net outflow of Rs 94.17 crore.

Inflows into mid-cap funds during the month were Rs 1,017.69 crore compared with Rs 1,808.18 crore in February and Rs 2,128.93 crore in March 2023.

Debt mutual funds experienced outflows of Rs 1.98 lakh crore led by outflows from liquid funds of Rs 1.57 lakh crore on account of liquidity management by corporates.

Overall the industry saw an outflow of Rs 1.59 lakh crore in March with the asset under management at Rs 53.4 lakh crore. The net AUM was at Rs 39.42 lakh crore in March 2023.

“The decline in equity inflows in March is primarily driven by the small and midcap category. This could be attributed to investors seeking relative valuation comfort, leading them to relocate towards these segments (large caps/flexi cap),” said Akhil Chaturvedi, chief business officer, Motilal Oswal Asset Management Company.

“The large-cap funds inflows saw a significant boost. However small cap funds witnessed outflows after 30 months since some of the mutual funds put in restrictions to limit fresh inflows into those funds as well due to market concerns because of frothy valuations and results of stress tests,” said Sanjay Agarwal, senior director, Care Edge Ratings.

“This could also be attributed to some profit booking and rebalancing (cutting small cap exposure while raising large cap exposure) by investors.”

“The liquid funds outflows of nearly Rs 1.57 lakh crore, albeit on the higher side compared with December 2022 as well as March 2023, are a regular quarterly pattern of liquidity management by corporates,” said Agarwal.

“The entire debt category was negative with the exception of long-duration funds. Usual balance sheet build-up led to outflows in the liquid ultra-short duration category. Quarterly seasonality of tight liquidity coinciding with the year-end led to even more pronounced outflows,” said Anand Vardarajan, business head, banking institutional clients, alternate products and product strategy, Tata AMC.