Mutual fund investments in Indian equity markets surged by 58% in May, amounting to over ₹48,247 crore, compared to ₹30,594 crore in April, driven by robust inflows as investors capitalized on the market downturn, according to data from SEBI.
Stock indices experienced a decline of approximately 2% last month due to delays in reaching a truce between the United States and Iran, alongside damage to oil refineries in the West Asian region. Additionally, global financial services firm Morgan Stanley has decreased India’s weight in its emerging market index. In its quarterly rebalancing effective Friday, MSCI reduced India’s representation in the Global Standard index from 12.4% to 12.3%, which led to a significant sell-off by foreign portfolio investors (FPIs) in Indian markets.
The indices provided by the New York-based MSCI are closely monitored by global investors, as they significantly influence capital flow, particularly passive funds that track the weights assigned to regions, countries, and companies.
Shweta Rajani, Head of Mutual Funds at Anand Rathi Wealth, indicated that domestic inflows remain stable as investors increasingly prioritize discipline and financial planning over market sentiment. Although most sectors reported double-digit earnings growth in the fourth quarter, margins faced pressure from rising commodity and input costs, a trend likely to continue into the June quarter.
While commodity inflation and global uncertainties pose risks, the combination of robust economic growth, favorable policy support, and an improving earnings cycle lays a positive foundation for both markets and mutual fund investors, Rajani noted.
Ponmudi R, Founder and CEO of Enrich Money, highlighted that despite worries regarding corporate earnings, investors are focusing on long-term perspectives rather than reacting impulsively to quarterly earnings fluctuations. He noted that a sustained rise in costs could affect household savings and discretionary spending, potentially slowing incremental investments, although the structural outlook for mutual fund inflows in India remains positive.
Addressing the resilience of Systematic Investment Plans (SIPs), experts argue that SIPs can effectively navigate market fluctuations by averaging costs over cycles, and temporary volatility should not deter disciplined long-term investors. Hariprasad K, Research Analyst and Founder of Livelong Wealth, stated that domestic retail participation, particularly through SIPs, has emerged as a strong and reliable source of capital, supporting equities even amidst volatility.
Over recent years, substantial liquidity has driven valuations up across various market segments, while earnings growth has begun to slow due to inflationary pressures, increased input costs, and softer demand. Hariprasad cautioned that rather than abrupt market declines, prolonged consolidation, where earnings gradually align with high valuations, could pose a larger risk, predicting that future returns may rely more on profit growth than on liquidity expansion.
The article was published on June 1, 2026.
