Even as Indian stock markets witnessed a sharp fall in March, mutual funds quietly stepped in with aggressive buying—signaling confidence where others saw risk.
Data shows that mutual funds invested nearly ₹55,413 crore in financial stocks alone during the month. This accounted for almost half of their total equity purchases, even as markets were under pressure due to rising geopolitical tensions involving the U.S., Iran and Israel.
At first glance, this may seem surprising.
Why would institutional investors buy heavily when markets are falling?
The answer lies in how experienced investors think.
When markets decline sharply, stock prices often fall faster than the actual business value of companies. For long-term investors like mutual funds, this creates an opportunity to accumulate quality stocks at lower prices—especially in sectors like banking and financial services, which are core to the economy.
And the fall was significant.
The Nifty Bank dropped 17% in March, while the Nifty Financial Services declined 15.6%, marking their steepest monthly fall since the COVID-era crash in 2020.
This sharp correction was driven by multiple pressures:
- Rising bond yields, which hurt bank portfolios
- Higher crude oil prices, increasing inflation concerns
- Currency pressure, forcing tighter liquidity conditions
India’s 10-year bond yield crossed 7%, hitting a one-year high. For banks, this matters because they hold large amounts of government bonds. When yields rise, bond prices fall, leading to potential losses on their books.
This is where the story becomes more nuanced.
While short-term risks increased, mutual funds appeared to focus on long-term value.
Overall, mutual funds bought equities worth ₹1.13 lakh crore in March, showing strong participation despite market weakness. However, total assets under management fell to ₹46.6 lakh crore from ₹51.29 lakh crore in February, mainly due to the market decline.
Interestingly, their influence in the market actually increased.
Mutual funds’ share in total market capitalization rose slightly to 11.3%, even as overall market value declined. This suggests that domestic investors are gradually playing a bigger role in supporting markets during volatile periods.
In contrast, foreign institutional investors (FIIs) took the opposite approach.
They sold nearly ₹1.26 lakh crore worth of equities in March, with a significant portion coming from financial stocks. Their ownership in Indian equities dropped to 15.14% from 15.5% a month earlier.
This divergence highlights a key shift in Indian markets.
While global investors reacted to uncertainty by pulling out, domestic institutions used the same uncertainty as a buying opportunity.
Beyond financials, mutual funds also invested across sectors:
- Consumer discretionary: ₹16,366 crore
- Telecom: ₹14,656 crore
- IT: ₹5,717 crore
This broad-based buying indicates that the strategy was not limited to one sector but reflected a wider belief in India’s long-term growth story.
Kaashika is a social media strategist and financial content creator at Lakshmishree. She specialises in simplifying complex IPO and stock market concepts into clear, easy-to-understand content. Having created over 500+ pieces of financial content across reels, blogs, website posts and digital creatives, Kaashika helps audiences connect with the world of finance in a more accessible and engaging way.
