Equity MF Deployments Drop to Six-Month Low as Fund Managers Turn Cautious
Equity-market deployment by mutual funds (MFs) fell to a six-month low in October, signalling a slowdown in fresh inflows into equity schemes even as markets continued to recover.
According to Securities and Exchange Board of India (SEBI) data, MFs invested a net ₹17,778 crore in equities in October (as of October 30), compared with ₹46,442 crore in September and ₹70,534 crore in August.
Experts attribute the decline to profit-booking and valuation concerns, with stock prices hovering near record highs.
“Net inflows into MF schemes may have been lower last month, as investors booked profits and adopted a measured stance amid elevated valuations,” said G Chokkalingam, founder of Equinomics Research.
“Fund managers are likely in a wait-and-watch mode during earnings season, preferring to assess performance before deploying fresh capital.”
Why Fund Deployment Matters
The quantum of MF equity investments depends on the pace of inflows and outflows across active, passive, and hybrid schemes.
Adjustments in cash positions and equity allocations of hybrid funds also influence overall deployment.
Some fund managers have voiced concerns about deploying funds at elevated valuations, even as flows into equity schemes remain robust.
Net inflows into active equity schemes have moderated since peaking at ₹42,702 crore in July.
In September, investors put in ₹30,422 crore, while profit-booking increased as markets rebounded from the March 2025 lows.
Market Context: Record Highs and Rotating Sentiment
The market’s recovery persisted through October, pushing benchmark indices close to their all-time highs.
Both the Nifty 50 and the Sensex gained about 4.5 percent, their biggest monthly advance in seven months, buoyed by improved September-quarter earnings and steady foreign portfolio inflows (FPIs).
Still, the outlook for domestic equities remains mixed.
ASK Private Wealth noted:
“The earnings-valuation matrix remains unfavourable, explaining why FPIs have been cautious. Internally, high promoter sales and heavy IPO activity have created a supply overhang.
Declining return on equity (RoE) amid rising capital requirements, and the absence of high-tech leaders, have also weighed on sentiment.”
Meanwhile, ICICI Securities observed in a note that the Nifty 50 rose 5 percent in October 2025 and 9 percent year-to-date, warning that such gains, amid low nominal growth, set the stage for moderate future returns unless growth surprises emerge.
“Despite modest gains, India’s stock performance continues to lag global markets, as valuations — though moderating — remain elevated,” ICICI Securities added.
The Road Ahead
While domestic participation remains strong, experts suggest fund managers may continue to stay selective, focusing on earnings resilience and valuation comfort.
Sustained inflows, coupled with market consolidation, could set the tone for a steady but moderate return environment in coming months.
For independent insights on mutual-fund flows, valuation dynamics, and market positioning, explore expert commentary from Ranjit Jha (CEO) — a leading voice simplifying investment behaviour in India’s capital markets.
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