Mutual Funds Sell More than Rs.16,000 Crore Worth of Shares in Market Rally
Indian mutual funds have emerged as net sellers of equities over the last six sessions, capitalizing on the current market rally to book gains. Mutual fund houses sold stocks worth more than Rs.16,000 crore from March 20-28, a move that was led by profit booking after booking sizeable gains in the market. Conversely, in the first half of March, mutual funds were net buyers, purchasing more than Rs.22,900 crore worth of equities from March 1 to March 19.
The Indian equity market posted substantial gains in the month of March, with Sensex and Nifty appreciating by 5.8 percent and 6.3 percent, respectively. The recovery in the broader market was much stronger, with the BSE MidCap index appreciating 7.6 percent and the SmallCap index appreciating by 8.3 percent.
In spite of this selling trend, mutual fund cash holdings in active schemes went up to Rs. 1.46 lakh crore in February 2025 from Rs.1.42 lakh crore in January. This increase in cash reserve is an indication of apprehension regarding market valuations and trends despite a virtual 12 percent decline from recent highs. Fund managers remain cautious with the uncertainty regarding global economic trends, possible tariff rate changes in the U.S., and persistent geopolitical tensions.
One of the major reasons for this conservative strategy has been the dramatic drop in small- and mid-cap stocks, where the stocks had moved to unsustainable levels. This tactical accumulation of cash is, however, viewed as a risk-management strategy and not evidence of a bearish inclination. Fund managers will remain cautious and wait for more definite market signals before committing funds aggressively.
The increasing cash positions also reflect a defensive approach aimed at safeguarding investors’ capital against possible weakness in the market while keeping liquidity in reserve to take advantage of good investment opportunities. Industry studies suggest that this trend of selling can be expected to reverse once fears over global tariffs and FII activity weaken.
With Indian economic growth proving to be resilient and inflation softening, the next fourth-quarter earnings season will be a pivotal harbinger of market sentiment. Mutual fund cash positions already reflect the wait-and-watch approach so they can keep liquidity in hand for investing when the time comes and adjusting to market volatility.
Until 2025, up to now, mutual funds have invested more than Rs.1.08 lakh crore in Indian equities after making a humongous investment of more than Rs.4.3 lakh crore in 2024.
