Mutual fund cash holdings fell to a 16-month low in March as fund houses used the market melt-down in March to accumulate more stocks amid rising geopolitical tensions.
The bellwether indices Nifty and Sensex crashed 12 per cent registering their sharpest fall since Covid pandemic. The rising oil prices and sharp depreciation in rupee besides steady pull-out by foreign investors due to prolonged West Asia war hit investors sentiments.
Despite the weak sentiments, MF investors continued to repose faith in equity investment. The SIP inflows touch all-time high of ₹32,087 crore and overall equity investments hit ₹40,450 crore.
In this backdrop, nearly 60 per cent of MFs diluted their cash holdings to buy stocks during the market crash, while the rest either increased or maintained their cash position
Shweta Rajani Head- Mutual funds, Anand Rathi Wealth said MF cash holdings last month declined to a 16-month low of ₹1.86 lakh crore, against ₹2.09 lakh crore in February.
Cash holdings fell by 12 per cent m-on-m basis and as a proportion of equity AUM, cash allocation stood at 4.72 per cent in March against 4.89 per cent in February, she said.
MFs used the 12 per cent fall in equities in march 2026 as an opportunity to deploy cash at lower levels. This apart, strong FPI outflows from equities made MFs infuse more in market to maintain stability in equity markets, she added.
Going ahead, she said the expected fuel price hike may create short-term volatility, particularly in inflation-sensitive sectors. However, the broader market sentiment is unlikely to be driven by one single factor.
Even a sharp increase in oil and gas prices of 50 per cent over a 6 months will only have a modest impact on aggregate corporate profits, said Rajani.
Robin Arya, smallcase Manager and Founder of research analyst firm GoalFi said low cash levels should not be mistaken for mutual funds running out of ammunition as they are getting steady inflows.
Investment through SIP registered 61st consecutive month of positive flows and the pipeline of fresh capital ensures MFs are not dependent solely on existing cash reserves to support markets, he added.
While geopolitical tensions and elevated crude prices remain near-term headwinds, the anticipated post-election fuel price revision of ₹10–15 per litre is largely priced in by markets, he said.
With fall in valuations and domestic flows remaining resilient, the medium-term outlook for equities remains constructive, said Arya.