For a country that loves Jumle Bazi (a good slogan), few have travelled as far and as fast as “Mutual Funds Sahi Hain.” It is reassuring and rhythmic. Almost patriotic. And it worked up to 2025.
While foreign portfolio investors quietly headed for the departure gate — pulling out roughly $20 billion in 2025— domestic mutual funds did something extraordinary. They absorbed the shock. Domestic mutual funds, along with other domestic institutional investors (DIIs), pumped record amounts into Indian equities in 2025, offsetting foreign selling — at one point totaling over ₹6 lakh crore (~$72 billion) in DII inflows for the calendar year 2025 alone. Equity mutual fund net deployments (i.e., actual investments into equities by mutual funds) exceeded ₹4 lakh crore in 2025, much of it via systematic investment plans (SIPs). The Nifty held up. Dips were bought. Volatility was domesticated.
Retail didn’t just participate. Retail rescued. That should have been the first warning sign. Because when foreign money exits and markets don’t fall, it means something important has changed.
The marginal buyer — the one who determines price direction — is no longer overseas capital. It’s you.
By January 2026, equity mutual fund inflows eased about 14 percent month-on-month to roughly ₹24,000 crore. Not a collapse. Not even alarming. But slowing. SIP contributions had hit record highs in December 2025, pushing industry assets under management beyond ₹82 lakh crore. Everyone, it seems, is “investing for the long term.” Which is excellent advice, until liquidity becomes the story.
Here is the part rarely mentioned in glossy fund ads with smiling families and sunsets: markets rise sustainably when fresh capital keeps entering. Not when existing capital simply rotates inside the same pool.
In 2025, the inflow momentum was relentless. SIPs ran like clockwork. Every global wobble was met with domestic conviction. “Buy the dip” became dinner-table wisdom. But 2026 looks different.
Analysts — even the bullish ones — cluster Nifty targets around 28,000 to 29,000 by year-end. With the index hovering near 25,500–25,800 in February, that implies single-digit returns before taxes and inflation. Add routine 5–7 percent drawdowns whenever oil spikes, US yields twitch or geopolitics sneezes, and the year ahead starts to look less like a rally and more like a treadmill.
You’re moving. But not arriving.
Earnings growth is steady, not explosive. Valuations still assume near-perfection in pockets. Foreign flows are selective dribbles, not the flood of earlier cycles. The global rate environment is no longer aggressively supportive. Liquidity is not drying up — but it isn’t accelerating either.
And acceleration is what bull markets feed on.
Government Focus has Shifted
Meanwhile, in North Block, optimism remains muscular. Data centres are the new temples of modern India. Capacity is set to double toward 2 gigawatts by end-2026. Roughly $70 billion is already committed; another $90 billion has been announced. The Union Budget extended tax holidays for such infrastructure till 2047.
The optics are powerful: hyperscalers building in Navi Mumbai and Hyderabad, sovereign funds circling, AI ambitions rising. It’s a story of scale, ambition and energy demand.
It is not automatically a story of equity rerating. Markets do not move because ribbon-cuttings happen. They move because incremental buyers overwhelm incremental sellers. Which brings us back to the quiet risk nobody wants to say aloud: what happens when redemptions start?
Not panic. Not a crash. Just a slow change in behaviour.
A few months of flat returns. A correction that feels a little sharper than usual. Social media posts shifting from celebratory portfolio screenshots to anxious questions. SIP pauses. Profit bookings. “Maybe I’ll wait for clarity.”
Redemptions don’t begin with sirens. They begin with hesitation.
The structure of India’s mutual fund boom has one defining characteristic: it is retail-heavy. That has been its strength. It can also become its vulnerability. Foreign investors tend to move strategically, often gradually. Retail money moves emotionally, sometimes abruptly. When markets are rising, systematic flows feel disciplined. When markets stagnate, discipline gets tested. If even a fraction of the ₹82 lakh crore industry begins to see net outflows for a sustained period, fund managers will do what they are required to do: sell to meet redemptions.
In a narrow market, that selling has a multiplier effect. And suddenly the comforting slogan meets arithmetic. This is not a prediction of doom. It is a recognition of cycle.
Bull markets end not because stories disappear, but because liquidity changes direction. In 2025, retail liquidity overwhelmed foreign selling. In 2026, the question is simpler: who is the next big incremental buyer?
The government is openly speaking of attracting $200 billion in fresh foreign investments. Perhaps it comes. Perhaps it strengthens the rupee and resets sentiment. But timing matters. Markets move in months; capital commitments often move in years. Until that fresh wave arrives, if it does, the domestic investor remains the backbone of demand.
But backbones, however, get tired.
The danger for 2026 is not a spectacular crash that makes headlines. It is something subtler and, for many portfolios, more frustrating: the glorious flatline. A year where indices oscillate. Where sharp dips are marketed as “healthy corrections.” Where rallies fade. Where returns, after costs and taxes, barely outrun inflation. A year where staying invested requires more patience than optimism.
And when the first meaningful wave of redemptions does arrive, it will not be accompanied by a government bailout or a foreign cavalry charging back in overnight. It will be met by bids at lower levels. That is how markets work.
Retail saved Indian equities in 2025. In 2026, retail may discover it wasn’t just participating in the market. It was holding it up. The Jumla "Mutual Funds Sahi Hain" won't change but hands holding up the markets will begin to shake. |
