The highest post-Covid outflows are in infrastructure and energy funds, followed by manufacturing.

Investor interest in equities mutual funds seems to be waning after months of inflows, especially in sectoral and thematic categories. Fund flows significantly slowed in March 2025, with Infrastructure and Energy funds seeing their biggest redemptions since the COVID period. Manufacturing funds also saw a similar pattern.

Elara Capital’s analysis of mutual fund flow data shows that inflows into pure equity schemes fell to Rs 25,000 crore in March, a one-year low. This represents a 40% decrease from the record influx of Rs 42,000 crore in October 2024 and a steep drop from Rs 29,000 crore in February.

Thematic and sectoral funds have experienced the worst decline, with a meager intake of just Rs 170 crore in March, down from Rs 22,400 crore in June 2024. This decline indicates that investor interest in niche strategies is waning.

The flows into different Sectoral & Thematic funds are displayed in the table below. Manufacturing, innovation, business cycle, and infrastructure funds had the greatest euphoria during this cycle. But at last, flows in the majority of these categories have begun to significantly slow down. Fund withdrawals from manufacturing, infrastructure, and energy have already slowed:

“Within the Thematic funds, Innovation and Quant funds saw their first outflow in almost two years, while Manufacturing funds saw withdrawals for the second month. According to Sunil Jain of Elara Capital, the Infrastructure & Energy/Power funds under Sector funds experienced the greatest redemption since COVID and the first outflow in two years.

Sectoral Slowdown: Impact on Manufacturing, Infrastructure, and Energy Manufacturing, innovation, business cycle, and infrastructure—hard funds that were once popular—are currently seeing large outflows:

Manufacturing funds recorded outflows for the second consecutive month.

Innovation and Quant funds saw their first outflow in nearly two years.
Infrastructure and Energy/Power funds posted their first outflow in two years, which also marks the largest sectoral redemption since the pandemic.
This downturn comes after a period of high optimism and strong returns.

Contrasting Trend: Mid & Small Caps Still Resilient

Despite the market correction, Small and Midcap funds continue to see strong inflows, defying the broader trend. March saw Rs 4,100 crore flow into Small Cap funds, which is 30% above the 1-year average. Large Cap funds, which had underperformed for over two years, have been gradually regaining investor interest since August 2024.

Trends in the NSE500 Indicate a Move Toward Big Caps
In the larger market, a structural change is also taking place. The NSE500 index weights are significantly shifting back toward the Top-50 large-cap stocks for the first time since 2020. Previous cycles in 2010 and 2018 that preceded protracted bear episodes in small and midcap stocks are suggestive of this trend.

Mutual fund allocations may begin to prioritize stability over high-growth volatility due to the rising concentration in large-cap names. This could have an additional impact on retail investing trends in the upcoming quarters.