India Stocks Defy FPI Flight: Domestic Funds Lead Resilience

Indian equities have demonstrated remarkable resilience over the past two years, successfully weathering geopolitical events and oil shocks despite consistent foreign investor divestment. This stability is largely attributed to domestic institutions, which now hold a greater proportion of listed shares than foreign portfolio investors (FPIs).

These domestic institutions' actions are directly influenced by retail investor behavior. In March 2026, as markets faced heightened volatility with oil prices exceeding $100 and the rupee depreciating, equity mutual fund redemptions saw a notable increase of 20% compared to February. This surge was likely driven by newer investors who joined the market post-Covid and seasoned investors seeking to harvest losses before the March 31 deadline.

However, redemptions were overshadowed by a substantial spike in new inflows into equity funds, reaching ₹62,076 crore in March 2026. This resulted in net inflows jumping to ₹40,450 crore, significantly higher than previous months. This trend indicates a growing base of seasoned investors who 'buy the dip' during market corrections.

The article also clarifies a common misinterpretation of SIP data, noting that while 'SIP stoppages' hit a record, they do not necessarily signal investor withdrawal. The overall stock of active SIP accounts remains robust at 9.71 crore, continuing to channel substantial funds into mutual funds.

Investors are showing a preference for mid-cap and small-cap funds, with flexi-cap, mid-cap, and small-cap categories receiving the largest inflows. Large-cap funds saw considerably lower inflows. Arbitrage funds experienced significant outflows, suggesting a move of 'dry powder' back into equities by seasoned investors anticipating market movements.