India Stock Fund Flows Drop Most in Three Years as War Drags On

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Monthly inflows into Indian equity mutual funds shrunk by the most in three years as investors cut stock exposure amid concerns about the prolonged US-Iran war’s impact on the energy-import dependent economy.

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Investors plowed 229.1 billion rupees ($2.4 billion) into equity plans in May, according to data from the Association of Mutual Funds in India. The inflows were down 40% from April, marking the steepest month-on-month decline since May 2023, the data showed.

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Domestic flows have helped support India’s $4.8 trillion market from record foreign outflows, providing a measure of stability as the Middle East conflict enters its fourth month. Yet retail investors are showing signs of fatigue as local equities continue to trail regional peers. The NSE Nifty 50 Index is down more than 10% this year, even as markets like South Korea and Taiwan hit records earlier this month. 

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“Macro concerns have led investors to adopt a wait-and-watch approach rather than make fresh allocations,” said Ankur Punj, a business head at Equirus Wealth. “The moderation reflects a more cautious investor sentiment.”

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The Iran war has weighed on India’s growth outlook and — despite a surprise jump last quarter — economists have cut their forecasts to well below the 7% pace that’s made India in recent years the world’s fastest-growing major economy. The Reserve Bank of India on Friday projected expansion of 6.6% in the fiscal year through March 2027, down from 7.6% last year.

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—With assistance from Chiranjivi Chakraborty.

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