Domestic funds step in as March sell-off draws strong buying interest

Domestic institutional investors emerged as a stabilising force in the recent market correction, deploying significant capital through March even as foreign outflows kept equities under pressure.

Estimates suggest mutual funds invested close to ₹80,000 crore during the month, using the sharp decline in prices to accumulate positions across sectors. The sustained inflows helped cushion the fall in benchmark indices and prevented a deeper correction, particularly during phases of intense selling by overseas investors.

The divergence between domestic and foreign flows has become more pronounced in recent months. While global funds have remained cautious amid rising geopolitical tensions and elevated US bond yields, local investors continue to channel savings into equities through systematic investment plans and lump-sum allocations.

Fund managers indicate that much of the buying was directed towards large-cap stocks and select cyclicals, where valuations turned more reasonable after the recent decline. Financials, industrials and consumption-linked names saw incremental interest, reflecting a preference for businesses with relatively stable earnings visibility.

The resilience of domestic flows has reinforced confidence in the structural depth of India’s equity markets. However, market participants caution that sustained support will depend on the continuity of inflows and the absence of further external shocks.

With earnings season approaching, investors are expected to turn more selective, focusing on companies that can deliver growth despite a challenging global environment. Until then, domestic liquidity is likely to remain a key counterbalance to foreign selling pressure.