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India-focused funds face eighth week of outflows as midcap redemptions hit eight-month high

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  Published in Stocks and Investing on Sunday, November 2nd 2025 at 20:32 GMT by moneycontrol.com
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India-Focused Funds Face Eighth Week of Outflows as Mid‑Cap Redemptions Hit Eight‑Month High

In a stark continuation of a trend that has gripped the Indian mutual‑fund market, India‑focused funds have recorded a net outflow for the eighth consecutive week, with mid‑cap funds experiencing a redemptions surge that tops the eight‑month high. The latest data, released by the Association of Mutual Funds in India (AMFI) and reported by Moneycontrol, shows that Indian equity funds, which had been the dominant category for inflows in the first half of the year, are now under pressure from a nervous investor base.

The Numbers Behind the Trend

• Total outflows: Indian equity funds recorded a net outflow of ₹1.17 trillion in the week ended 15 September, a decline from the ₹1.23 trillion outflow the previous week.
• Mid‑cap outflows: Redemptions from mid‑cap funds reached ₹19.5 billion, the highest in eight months and up 28 % from the prior week.
• Large‑cap outflows: Large‑cap funds saw a net redemption of ₹7.3 billion.
• Small‑cap outflows: Small‑cap funds were the most heavily drained, with ₹9.2 billion in redemptions.

These figures were confirmed by the latest “Mutual Fund Flows” report, which also highlighted that the cumulative outflow over the last five weeks now exceeds ₹5.5 trillion, marking a significant shift from the inflow trend that had dominated the first quarter.

Why the Mid‑Cap Sector Is Feeling the Heat

Mid‑cap companies are often seen as a sweet spot for investors seeking growth with a moderate risk profile. However, they are also more vulnerable to market volatility and macro‑economic swings. The Moneycontrol article cites several key drivers for the recent redemptions:

1. Rising Market Volatility – The BSE Sensex and NSE Nifty have seen increased swings, with the volatility index (VIX) hitting 18.2, the highest since late 2022.
2. Global Risk Sentiment – A sharper rise in U.S. Treasury yields and a tightening stance from the Federal Reserve have created a contagion effect, making risk‑seeking investors retreat.
3. Domestic Concerns – The RBI’s recent announcement to keep the repo rate unchanged and a cautious stance on credit growth has dampened enthusiasm for growth‑oriented stocks.
4. Sector‑Specific Pressure – Several high‑profile mid‑cap names, particularly in the consumer staples and IT services sectors, have faced earnings concerns and regulatory scrutiny, leading to a sell‑off.

According to a note from a senior portfolio manager at HDFC Mutual Fund, “Mid‑cap investors are typically more sensitive to earnings volatility. The current macro backdrop, combined with some disappointing quarterly results, has pushed many to lock in losses.”

The Broader Picture: Investor Sentiment and Macro Factors

The outflow narrative is not limited to the mid‑cap space. Moneycontrol’s article highlights that the entire equity segment is being weighed down by a confluence of factors:

• Global Uncertainty – Ongoing trade tensions between the U.S. and China, along with geopolitical tensions in the Middle East, have amplified risk‑aversion.
• Interest Rate Hikes – The recent 25‑basis‑point hike by the RBI, coupled with expectations of further tightening, has made borrowing costlier for corporates and dampened the debt‑backed growth narrative.
• Fiscal Outlook – The government’s announcement of a modest fiscal deficit target and a focus on infrastructure spending has not yet translated into clear investment signals, leading to a lag in domestic capital inflows.

The article links to a detailed infographic from the AMFI titled “Mutual Fund Flows – 2024‑Q3”, which visually depicts the decline in equity inflows and the rise in outflows across all fund categories. This chart confirms that the outflow momentum has persisted since the last two quarters.

Industry Response and Potential Mitigations

The Moneycontrol piece notes that several asset‑management companies are exploring strategies to stabilize investor sentiment:

• Enhanced Communication – Managers are increasing transparency regarding portfolio construction and risk metrics.
• Product Innovation – A number of funds are launching “mid‑cap opportunistic” schemes that aim to capture short‑term market inefficiencies while limiting downside exposure.
• Risk Management – There is a shift towards incorporating more robust risk‑monitoring frameworks, such as scenario analysis and stress testing, particularly for funds with higher volatility profiles.

An interview excerpt from a senior analyst at SBI Mutual Fund underscores this approach: “We’re now focusing on sector diversification and hedging to buffer against short‑term swings. Investors are looking for more stability and clear rationale for portfolio moves.”

Looking Ahead

With the Indian economy expected to grow at a moderate pace in 2025, the mutual‑fund landscape will likely continue to be shaped by a mix of domestic and global forces. The Moneycontrol article concludes that while outflows have been a painful reality for the week, they could also signal a recalibration phase that may benefit long‑term investors who are able to stay the course. The next few weeks will be crucial in determining whether the market can regain the confidence needed to reverse the outflow trajectory, especially as the RBI and fiscal authorities provide clearer guidance on their policy paths.