Domestic mutual funds demonstrated remarkable resilience during March's market correction, deploying ₹40,500 crore into Indian equities - a 56% increase from February's ₹26,000 crore. According to reports from Mint, this aggressive buying activity by mutual funds emerged as a key counter-bidding force to heavy FII selling, highlighting the growing role of domestic money as a stabilising force during periods of market volatility. The BSE Sensex declined 11.5%, shedding 9,340 points in March amid the impact of the West Asia war, making valuations more attractive for equity investors. As per Abhilash Pagaria, Head - Nuvama Alternative & Quant, FII-led extreme sell-offs are increasingly being used as buying opportunities, with domestic investors deploying funds during sharp market weakness.
India's largest private sector lender HDFC Bank emerged as the single-largest addition across mutual funds in March, both at an industry level and within several top asset managers. As reported by Mint, the bank saw net mutual fund additions worth about ₹15,800 crore, far outstripping other large-cap peers and figuring among the top additions for three straight months alongside Bharti Airtel, ICICI Bank, Kotak Mahindra Bank, and Titan Company. Major asset management companies including ICICI Prudential MF added approximately ₹4,570 crore worth of HDFC Bank, while SBI MF bought roughly ₹2,610 crore during the month. However, recent data shows HDFC Bank recorded a net addition of 21 crore shares in March 2026, with mutual funds increasing holdings to 69.7 crore shares from 67.2 crore shares in February 2026, despite the stock declining around 10% during the month. Last month was particularly challenging for HDFC Bank as investors sold off stocks amid fears of corporate governance lapses following the exit of chairman Atanu Chakraborty over "ethical" concerns, but domestic funds doubled down their bets on the lender.
In a stark contrast to equity buying, debt mutual funds experienced unprecedented outflows of ₹2.95 lakh crore in March 2026, marking a 50% year-on-year increase and the highest outflow on record. According to data from AMFI, liquid funds accounted for the largest share of outflows with ₹1.35 lakh crore in redemptions, followed by overnight funds at ₹40,227 crore and money market funds at ₹29,207 crore. As per Ravi Kumar Jha, MD & CEO, LIC Mutual Fund Asset Management, banks, NBFCs and corporates are holding on to additional liquidity as a precaution amid geopolitical uncertainty due to the West Asia conflict. The outflow from debt funds typically shows heavy redemptions in March as corporates withdraw funds to meet year-end obligations, but this year's reading was the highest on record amid the need to build extra liquidity triggered by the West Asian crisis.
Amid volatile markets and an 11% fall in benchmark indices in March, mutual funds increased equity deployment to tap the correction despite global headwinds. Cash holdings dropped 12% month-on-month to a 16-month low of ₹1.86 lakh crore in March, down from ₹2.09 lakh crore in February, according to ACE MF data. As per The Economic Times, this significant reduction in cash positions demonstrates mutual funds' confidence in the market correction and their willingness to deploy capital aggressively during periods of volatility. The shift toward equities was driven partly by investors seeking to take advantage of the sharp market correction in March, which made valuations more attractive.
Six asset management companies maintained cash holdings exceeding ₹10,000 crore in their portfolios during March 2026. PPFAS Mutual Fund had the highest cash allocation at ₹29,327 crore, representing 21.76% of total AUM, while Parag Parikh Flexi Cap Fund held ₹28,698 crore cash. SBI Mutual Fund, the largest fund house based on assets managed, had ₹27,463 crore cash in its portfolio, which was 3.98% of total AUM. HDFC Mutual Fund maintained ₹21,352 crore cash, representing 5.08% of total AUM with an equity AUM of ₹3.99 lakh crore as of March 2026. ICICI Prudential Mutual Fund held ₹17,289 crore cash, which was 3.53% of total AUM, while Axis Mutual Fund had ₹16,469 crore cash, representing 9.31% of total AUM.
Despite significant mutual fund accumulation, several stocks in the top 46 additions list experienced negative price performance during March 2026. As reported by The Economic Times, among the 46 stocks that saw additions of over 1 crore shares each, HDFC Bank and Yes Bank recorded the highest increase in share additions, with HDFC Bank adding 21 crore shares and Yes Bank adding 20 crore shares. However, both stocks declined approximately 10% and 9% respectively during the month, suggesting possible bottom fishing by mutual funds. The data reveals a complex dynamic where institutional demand remains strong despite temporary price weakness, with mutual funds continuing to accumulate quality stocks across sectors while navigating market volatility. In the large-cap space, Power Grid, Grasim and Apollo Hospitals were the biggest selloffs as mutual funds offloaded stocks worth ₹8,000-1,100 crore in these names.
