Overall equity mutual fund inflows stood at ₹38,426 crore in April, down from ₹40,366 crore in March, marking a decline of about 4.8% month-on-month. However, within equity categories, mid- and small-cap funds continued to show relative strength compared with large caps.
Small-cap funds recorded net inflows of ₹6,885.9 crore in April, up around 9.9% from ₹6,263.6 crore in March. Mid-cap funds also saw healthy participation, with inflows rising to ₹6,551.4 crore from ₹6,063.5 crore, an increase of about 8% month-on-month.
Large-cap funds, meanwhile, witnessed softer demand, slipping to about ₹2,524 crore in April from ₹2,997 crore in March — suggesting a degree of rotation within equity allocations.
Rotation continues toward mid and small caps
Market participants said the sustained flows into the broader market segment reflect structural optimism despite global volatility.
According to Rajesh Kothari, MD & Founder, ALFAccurate Advisors, a SEBI-registered Portfolio Management Services (PMS) and investment advisory firm, India’s mid- and small-cap universe continues to draw attention due to stronger growth visibility and a significantly wider opportunity set.
“Unlike the top 100 companies, where growth naturally moderates because of their sheer size, the next 900 companies offer a far greater runway for expansion. This is where India’s next generation of market leaders is getting created,” he said.
Kothari noted that several sunrise sectors expected to benefit from India’s capex, manufacturing, digitalisation, and healthcare cycles are predominantly represented in the mid- and small-cap universe.
“Segments such as data centres, transformers, HVDC equipment, EMS, CDMO, hospitals, specialised manufacturing, and niche industrials are largely populated by mid- and small-cap companies rather than traditional large caps,” he added.
He further said that earnings trends continue to support the segment.
“Over the last 12 months, mid- and small-cap companies have delivered earnings growth of over 15%, higher than large caps,” he said, adding that investors seeking long-duration growth opportunities naturally need exposure to this segment.
Kothari also highlighted the breadth of opportunities available in the broader market space. “
Within the mid- and small-cap universe, there are always 20–30% of companies capable of growing meaningfully faster than nominal GDP growth for extended periods. In practical terms, this translates into a hunting ground of over 150 potential high-growth companies at any point in time,” he said.
On valuations, he said the segment appears far more reasonable than commonly perceived after undergoing both time and price corrections over recent quarters.
“When evaluated through the PEG ratio framework, many high-quality mid- and small-cap businesses continue to trade at reasonable valuations relative to their earnings growth potential,” he added.
Debt still anchors overall flows
Despite equity market activity, debt mutual funds continued to dominate overall flows, attracting ₹2.47 lakh crore in April. Overnight and short-duration categories remained steady, while long-duration and gilt funds saw outflows, reflecting continued caution around interest rate risk.
