DII flows into equity hit 10-month low in February

Mumbai: Domestic institutional flows into stocks slowed in February to their lowest level since April 2025, as lacklustre returns over the past 18 months and a shift in investor interest to outperforming precious metals have reduced flows into plain-vanilla equity products.

According to provisional data, these investors, including mutual funds, insurers, pension vehicles and treasuries – bought shares worth ₹26,130.3 crore so far this month- a cut of more than half of their average buying in the last six months.

In the past three months, domestic institutional investors (DIIs) were robust, ranging between ₹69,000 crore and ₹79,000 crore. The sharp swings in the market -especially in mid- and small-cap stocks – may have led to a decline in domestic inflows. Mutual fund investors in January had doubled their allocations to precious metals, riding the eye-popping surge in silver and gold prices. Monthly flows into gold and silver schemes exceeded those into equity funds – the industry’s growth engine in recent years – for the first time.

Flows chase returns, and unfortunately, the Indian markets have given tepid returns in the last 15 months, said Rupen Rajguru, head – Equity Investment and Strategy, Julius Baer India.

“A significant chunk of domestic inflows had come into midcaps, smallcaps and thematic funds and the underperformance in these segments could have led to reduced intensity of flows,” he said.

Since September 2024 – when the volatility in Indian markets began -Nifty and Sensex fell 2.7% and 4.2%. The Nifty Midcap 150 index moved 1.3% lower and the Nifty Smallcap 250 index slumped 13% in the same period.

“Markets attract liquidity when they perform well, but given the underwhelming performance, the inflows into mutual funds could have also reduced,” said Siddarth Bhamre, head of Research, Asit C Mehta Intermediates. “However, it’s too early to say whether it is a pause or a change in trend.” Domestic institutions led by mutual funds have been the bedrock of Indian equities since September 2024, when foreign funds began pulling out of the market in hordes amid worries about slowing earnings growth and lofty share valuations.

Individual investors, encouraged by the eye-popping returns from mutual funds till then, continued pumping money into equity schemes, especially through the monthly Systematic Investment Plans (SIPs), hoping for a rebound soon. But some of those expectations have been tempered by the uncertainty, while the surge in silver and gold has prompted them to shift their incremental allocations to these assets.

“Many participants who started their SIP in 2021–2022 may feel that they have invested at a lower level,” said Bhamre. “But a major chunk of their SIPs has been deployed at higher levels over the last 2-3 years, and hence, SIP returns over the last 3-4 years are not looking attractive.”

In February so far, foreign investors turned buyers worth over Rs 895.6 crore consistent selling, based on data from the exchanges. “Foreign flows have been inching higher steadily after the US-India deal framework and coincided with the inflows into emerging markets,” said Rajguru.

“The worst of foreign outflows seems to be behind us, and some foreign money is expected to trickle into India.” Since October 2024, they have sold shares worth over `4.02 crore. Domestic investors purchased over Rs 10.6 lakh crore in the same period.

Analysts said other emerging markets like South Korea and Brazil offer much higher growth than India, which is why overseas investors are not in a hurry to allocate funds to India. “Overseas investors taking a pause is a shift in stance, and the days of aggressive selling sprees seem to be behind us, given India’s relative underperformance compared with its global peers, which makes it a reasonable bet,” said Bhamre.