Whalesbook
Investors Favor Equity Funds Again
Active equity funds are once again becoming the top choice for Indian investors, drawing about 1.5 million new accounts between February and April 2026. This comes after a period from September 2025 to February 2026 when commodity exchange-traded funds (ETFs), particularly those focused on gold and silver, saw record inflows. Precious metals had gained favor due to strong price rallies and higher volatility in stock markets, which had previously made investors hesitant about active equity funds. The current trend suggests investors are taking advantage of market dips as a chance to buy into or add to their equity holdings.
Equity Funds Attract Millions After Dips
The growing interest in active equity funds stems largely from market corrections that have created what many see as good buying opportunities. Flexicap, midcap, and smallcap funds are leading this surge, receiving the majority of new accounts. This highlights a strategy focused on diversification and growth potential, especially in smaller companies, even with ongoing market swings. In April 2026 alone, equity funds attracted ₹38,440 crore in net inflows. While slightly less than March, this shows continued strong retail investment via Systematic Investment Plans (SIPs) and strategic capital deployment. Flexi-cap funds alone saw a record ₹10,147 crore inflow in April, reflecting confidence in fund managers' ability to adapt across market sizes, often leaning towards large-caps when uncertainty is high.
Gold and Silver ETFs See Fewer Accounts
Commodity ETFs, which had previously drawn more investors than active equity funds at various points in late 2025 and early 2026, are now seeing a significant slowdown. Commodity ETFs lost nearly 20,000 accounts in April 2026, a sharp turn from their recent popularity. Although gold and silver ETFs attracted a large ₹99,280 crore in FY26 (55% of all ETF inflows), this was largely driven by investors seeking safety during global uncertainties and following price trends, rather than a major shift away from equities. The tax advantages of gold and silver ETFs, with long-term capital gains taxed at 12.5% after 12 months, also added to their appeal compared to physical holdings. This recent decline suggests demand might be leveling off or reversing as stock market valuations appear more appealing. Commodity ETFs still showed substantial market activity with an average daily turnover of ₹2,700 crore from April 2025 to February 2026, though equity ETF turnover was lower at ₹745 crore.
Economic Backdrop: Inflation, Rates, and Sector Trends
This move back to equities is happening amid a complex economic environment. Inflation in April 2026 was 3.48%, a slight increase from the prior month but lower than expected, with food inflation at 4.20%. The Reserve Bank of India (RBI) kept its repo rate at 5.25% since February 2026, suggesting a pause. However, some economists predict potential rate increases in fiscal year 2026-27 due to ongoing inflation worries and global uncertainties. Geopolitical tensions, especially in the Middle East, continue to create market volatility and affect commodity prices. On the structural side, India's stock markets are increasingly relying on domestic institutional investors (DIIs), like mutual funds and SIPs, which are helping to offset foreign institutional investor (FII) outflows. This strong domestic buying has made markets more resilient, handling corrections with less panic than before. Looking at sectors, while Defence, Realty, and Metals performed well early in 2026, analysts expect continued strength in Banking, IT/AI, Infrastructure, and Renewable Energy for the year, supported by government policies and long-term growth trends. Active equity funds, despite having higher costs (Total Expense Ratios, or TERs, from 0.64% to 0.82% compared to passive ETFs often below 0.20%), are proving their worth in volatile markets by offering flexibility. For example, HDFC Flexi Cap Fund achieved a 33.97% CAGR between 2020-2025, beating many passive funds, although passive options offer more predictability. The market appears less overvalued compared to its long-term average, potentially creating a more balanced investment case for equities.
Cautionary Notes: Risks Remain
While the inflow into equity funds suggests investors see opportunities in tactical plays, the reliance on market corrections also calls for caution. The "buy the dip" strategy implies that current inflows are more about seeking bargains than strong belief in a broad economic recovery. India's stock market still looks expensive when compared to global markets. Although valuations have eased somewhat, smaller-cap stocks, even after recent corrections, remain priced at a premium. The market's current stability heavily depends on steady domestic inflows. This support could weaken if global economic conditions worsen or geopolitical risks intensify, potentially causing foreign investors to pull out. Ongoing geopolitical tensions, possible changes to RBI interest rates, and the risk of commodity price swings remain significant threats. Additionally, the debate over whether active funds truly outperform passive ETFs after considering higher fees continues; many active funds have historically found it difficult to consistently beat their benchmarks after costs.
Looking Ahead: Positive Outlook for Equities
Analysts anticipate a positive outlook for Indian equities in 2026, forecasting earnings growth of around 16% for FY27. Supportive government policies, the RBI's cautious monetary approach, and robust domestic demand are expected to drive market performance. Key investment areas include banking, IT (especially with AI adoption), renewable energy, infrastructure, and financial services. While domestic investment provides stability, investors should stay aware of global economic uncertainties and maintain diversified portfolios. The current market trend shows investors looking for value and flexibility, seizing tactical opportunities while keeping an eye on underlying risks and changing sector trends.