Mutual Fund Trends, Inflation Data & Market Mood: A Deep Dive into India’s Market Sentiment – June 2025

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13 Jun, 2025

Mutual Fund Trends, Inflation Data & Market Mood: A Deep Dive into India’s Market Sentiment – June 2025

The Indian equity market has been riding a wave of mixed signals lately — a blend of positive domestic macroeconomic data and unnerving global developments. While India’s Consumer Price Index (CPI) inflation has eased considerably, fresh concerns have emerged from the mutual fund industry regarding investor sentiment toward equities. In this post, we’ll unpack the latest AMFI data, inflation trends, sectoral shifts, and their combined effect on market sentiment.

AMFI Data Reflects Caution in Equity Participation

The Association of Mutual Funds in India (AMFI) recently published its May 2025 numbers, and while Systematic Investment Plans (SIPs) touched a fresh all-time high of ₹26,688 crore, the worrying part lies in overall equity inflows. The net inflow into equity mutual funds has now fallen for the fifth consecutive month, dropping to a 13-month low.

Interestingly, while SIPs continue strong — tripling over the past four years — discretionary or lump sum investments into equity schemes have slowed dramatically. This points to increasing investor nervousness, despite steady participation through SIPs.

Shift from Equity to Debt & Arbitrage Funds

The data suggests that while SIP numbers remain robust, much of this fresh investment seems to be finding its way into debt, gilt, and arbitrage funds. Investors, anticipating potential rate cuts from central banks globally, are looking to capitalize on NAV appreciation in debt-oriented funds as bond yields fall.

Moreover, equity large-cap funds have seen a notable decline in participation. The sentiment appears to be shifting: if investors are choosing equity, they're opting for riskier mid-cap and small-cap funds rather than safer large-cap names. The broader sense is: stay defensive in debt, or go aggressive in mid and small caps — avoid the middle ground.

Inflation at 6-Year Low: A Macro Positive

Adding a silver lining to this cautious market mood is India’s latest CPI inflation figure, which cooled to 2.82% in May 2025, down from 3.16% in April — marking one of the lowest readings since February 2019.

The key driver behind this drop has been a sharp decline in food inflation, which eased to 0.99% in May from 1.78% in April. A favorable monsoon forecast has further supported this downtrend. Lower inflation is a strong macro positive for India, offering headroom for the Reserve Bank of India (RBI) to potentially ease monetary policy if global conditions permit.

Sectoral Pressure & Market Movements

The mutual fund industry’s total assets under management (AUM) has grown from ₹69 lakh crore to ₹72 lakh crore, though this increase has largely come from valuation gains rather than increased investor participation. This cautious stance was reflected in the stock market yesterday, as AMC stocks corrected, dragging down financial sector stocks too.

The market would have slipped further if not for a counterbalancing rally in IT stocks, highlighting the defensive pivot by investors amid broader profit booking.

Other India-Specific Highlights

NSE received SEBI’s approval for launching monthly electricity futures, a significant step for energy derivatives trading in India.

The Consumer Price Index (CPI) data confirms India’s inflation management is on track, providing much-needed relief amid global market stress.

Despite these domestic positives, global volatility, profit booking, and fund flow trends continue to weigh on India’s market trajectory.

Written by Saurabh Jain

Disclaimer:
This content is intended for educational and informational purposes only and should not be construed as investment, trading, or financial advice. The information shared here reflects market observations and opinions and may not be suitable for your individual circumstances. Please consult a certified financial advisor before making any investment or trading decisions. The author and platform do not assume any responsibility for financial losses or gains incurred based on the content shared.

Our Recent FAQS

Frequently Asked Question &
Answers Here

What did the latest AMFI data reveal?

The AMFI report for May 2025 showed that while SIP contributions reached an all-time high of ₹26,688 crore, the net inflow into equity mutual funds fell for the fifth straight month, hitting a 13-month low.

Why are equity inflows falling despite record SIPs?

Although SIP investors remain disciplined, lump sum investments and fresh inflows into equity funds are drying up. Rising global uncertainties and volatility have prompted investors to redirect funds toward safer options like debt, gilt, and arbitrage funds.

Which mutual fund categories are facing the most pressure?

Equity large-cap funds have seen the sharpest drop in participation. While mid-cap and small-cap funds have also declined, they still attract investors willing to take selective risks

What’s the outlook on inflation and its market impact?

India’s CPI inflation dropped to 2.82% in May 2025, its lowest level since February 2019, mainly due to falling food inflation. This is a positive for the economy and could encourage monetary easing if global conditions stabilize.

What other India-specific developments should investors note? •

NSE’s SEBI approval for monthly electricity futures. • • Decline in equity inflows despite SIP growth. • • A significant AUM increase driven by valuation gains rather than fresh investments. •