Whalesbook
Why Funds Kept Buying During a Market Plunge
Mutual fund managers actively bought more shares in a majority of stocks across large, mid, and small caps during March 2026. However, the overall market conditions led to significant drops in the value of many investment schemes. This situation highlighted underlying pressures that offset strong institutional demand.
Mutual funds increased their stake in 78% of Nifty 50 stocks, 54% of Nifty Midcap 100, and 77% of Nifty Smallcap 100 stocks in March 2026, according to data from Motilal Oswal Financial Services. This buying spree, notably in large companies like Adani Enterprises and Bharti Airtel, contrasted sharply with the broader market's performance. The Nifty 50 index fell 11.36% for the month, its sharpest monthly drop since March 2020. This decline was fueled by escalating geopolitical tensions and substantial selling by foreign institutional investors (FIIs). The Nifty Midcap 100 and Smallcap 100 also saw corrections. These market drops directly impacted fund values, with top schemes experiencing declines between 6.9% and 12%. The India VIX, a key market fear gauge, reached a four-year high of 27.75 on March 30, 2026, reflecting increased investor worry.
What Drove the Market Down: Global Fears and Sector Slumps
While institutional money flowed into specific stocks, overall market sentiment was negative due to geopolitical instability, especially the US-Iran conflict. This pushed oil prices above $108-$113 per barrel, raising inflation concerns and leading to a weaker rupee, which neared 93.7 against the US dollar. Sector performance varied: Energy and PSU stocks showed more stability, while Nifty IT fell, and Auto and Realty sectors dropped by about 15%.
The valuations of these heavily bought stocks were mixed. Bharti Airtel traded at a price-to-earnings ratio of about 32.4-37, close to its industry average. Adani Enterprises had a P/E of approximately 16.54-25.3, well below its 10-year median. Shriram Finance's P/E was around 18.35-25.88, also above its historical median.
Despite market declines, strong inflows into actively managed equity funds totaled ₹40,450.26 crore in March 2026, with SIP contributions hitting a record ₹32,087 crore. This shows ongoing retail investor confidence in professional management.
Key Risks That Hit Fund Values
The market in March 2026 was risky, causing fund values to drop for many schemes. Persistent geopolitical conflict in the Middle East significantly dampened sentiment, pushing the India VIX to a four-year high and signaling elevated market fear. This was worsened by substantial FII selling, over ₹60,000 crore in March, showing a cautious sentiment among foreign investors.
Large outflows from debt funds, totaling ₹2.94 lakh crore in March, suggest institutional investors were shifting money or managing short-term cash needs, potentially affecting overall market liquidity. Sharp drops in fund values, up to 12% in funds like HDFC Large Cap Fund, suggest weaknesses in their portfolios. This could be from holdings in heavily impacted sectors or poor performance from specific stocks, outweighing the general trend of institutional buying.
Analyst sentiment also turned cautious. MarketsMOJO downgraded Bharti Airtel to a 'Sell' rating on March 16, 2026, citing potential challenges.
What Analysts Saw Next
Despite the market volatility in March, sentiment began shifting towards recovery. Analysts at ICICI Direct anticipated a sharp rebound in April, suggesting the worst might be over. Projections for the Nifty Smallcap 100 index indicated a potential 20-25% rise by the end of 2026, following its March correction. Earlier forecasts from Axis Securities had placed the Nifty 50 target at 26,800 by March 2026 in an optimistic scenario, highlighting the contrast between these predictions and the actual market outcome influenced by unforeseen geopolitical events.