Mumbai, February 16: Mutual funds have turned net sellers in Indian equities for the first time in nearly three years, offloading shares worth approximately Rs 4,100 crore so far in February, marking a sharp shift after a prolonged buying streak.
This is the first instance of net selling since April 2023, when mutual funds sold over Rs 4,532 crore in domestic equities. Between May 2023 and January 2026, domestic institutional investors had remained net buyers for 34 consecutive months, underlining the significance of the current reversal.
February Selling Follows Heavy January Buying
The latest selling comes on the back of sustained accumulation in recent periods. Mutual funds had purchased equities worth Rs 42,355 crore in January 2026 and built cumulative exposure of nearly Rs 4.93 lakh crore during calendar year 2025.Industry participants suggest that the February selling should be viewed in the context of prior aggressive deployment rather than as a structural shift in sentiment.
Portfolio Repositioning, Not Redemption Pressure
Deven Choksey, Managing Director at DRChoksey FinServ, said the selling reflects portfolio repositioning rather than redemption-led pressure. According to him, funds are exiting certain underperforming stocks and reallocating capital toward better-quality names, particularly in the large-cap segment.He added that some asset managers are also churning portfolios after having accumulated stocks earlier when foreign institutional investors were net sellers. There is currently no visible sign of redemption pressure, with systematic investment plan inflows continuing steadily. The activity appears to be largely linked to portfolio churn and profit booking.
Feroze Azeez, Deputy Chief Executive Officer at Anand Rathi Wealth, noted that the scale of selling is modest relative to the size of the industry. With assets under management of approximately Rs 40 lakh crore, the Rs 4,100 crore offload is relatively small and may reflect adjustments by select schemes or fund houses rather than a broad-based exit.
Index Rebalancing and Global Factors in Play
Market experts also point to possible index rebalancing effects, as January 31 marks the review date for NSE indices, and MSCI announced a rejig in early February. Such periodic adjustments often lead to short-term flow distortions.Akshay Chinchalkar, Managing Partner and Head of Market Strategy at The Wealth Company, said multiple factors may be influencing flows, including evolving developments in the India–US trade deal, particularly revisions related to agricultural goods.
He added that investor preference has tilted toward gold and silver ETFs, bond funds, and hybrid funds amid geopolitical uncertainty and expectations of further policy easing.
Broader Market Weakness Visible
The divergence is also reflected in broader market performance. While the Nifty 500 is down about 3.4 percent from its 52-week high, nearly 50 percent of stocks in the index are trading more than 20 percent below their respective 52-week highs, indicating underlying weakness beneath headline indices.Foreign institutional flows have been intermittent, and sustained inflows may depend on relative valuations and currency stability. The rupee continues to hover near its lows despite recent policy measures, adding another variable to capital flow dynamics.
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