After March Rally, Mutual Funds Sold Equities Worth ₹16,000 Crore in Just 6 Sessions

According to a recent news report, mutual funds offloaded equities worth over ₹16,000 crore between March 20 and 28, marking a significant shift in their investment stance. This selling spree is seen as a strategic move towards profit booking, following a sharp rally in the Indian equity markets during the first half of March.

While mutual funds had been net buyers earlier in the month—purchasing over ₹22,900 crore worth of stocks between March 1 and 19—the tone shifted as market valuations soared, prompting fund managers to lock in gains.

Benchmark Indices Posted Strong Gains in March

The change in fund flows coincided with robust performance across key indices. During March, the Sensex and Nifty rose by 5.8% and 6.3%, respectively. Even more impressive were the gains in broader markets: the BSE MidCap index jumped 7.6%, and the SmallCap index surged 8.3%.

Such rallies often invite caution from institutional investors, who may view elevated valuations as unsustainable in the short term. Hence, profit-booking at such levels is not unusual.

Rising Cash Levels Suggest Cautious Sentiment

Interestingly, mutual funds’ cash holdings in active equity schemes grew to ₹1.46 lakh crore in February 2025—up from ₹1.42 lakh crore in January. This growing cash reserve signals a cautious approach adopted by fund managers, perhaps reflecting concerns over market direction, valuations, and global economic uncertainties.

Despite the Indian market’s recovery after a near 12% correction from its recent peaks, fund managers appear to be operating with a wait-and-watch strategy. The increased cash levels offer them liquidity and flexibility, enabling timely profit booking as market volatility continues.

Global Headwinds Add to Market Uncertainty

Several external factors may also be influencing fund behaviour. These include geopolitical tensions, concerns surrounding the global economic outlook, and proposed trade tariffs by former US President Donald Trump. Together, these elements introduce further unpredictability, potentially affecting investor confidence.

In such an environment, maintaining higher cash reserves can act as a buffer against short-term shocks and provide opportunities to re-enter the market at more favourable valuations.

The Road Ahead: Earnings to Drive Market Sentiment

While mutual funds have sold aggressively in the recent sessions, the longer-term picture remains dynamic. The focus now shifts to India’s fourth-quarter earnings season, which will be a crucial driver of market sentiment in the coming weeks.

With India’s economic growth on a firm footing and inflation easing, earnings announcements will help shape future equity trends. Fund managers may continue to recalibrate their portfolios based on evolving data and outlook.

Conclusion

Despite the recent selling activity, mutual funds remain net buyers in 2025, having invested over ₹1.08 lakh crore in Indian equities so far. This follows ₹4.3 lakh crore worth of investments made throughout 2024.

Thus, while the recent selling may appear significant, it is part of a broader capital allocation strategy aimed at managing risk, ensuring liquidity, and positioning for the next phase of market movement.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.

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