Mumbai: Indian mutual fund (MF) managers outperformed foreign fund managers by portfolio performance in the 11 months through August, a period when benchmark indices declined.
The unrealized loss in mutual funds’ pure-play equity portfolio was 49.6% against a 57% mark-to-market (MTM) loss by foreign portfolio investor (FPI) fund managers during October last year to August 2025, according to data by NSE, Association of Mutual Funds in India (Amfi) and National Securities Depository Ltd (NSDL). The benchmark Nifty declined 5% and the broader Nifty 500 fell 7.45% during the period.
Senior industry executives attributed this outperformance to several factors, including the likelihood of better stock-picking skills, increasing mutual fund ownership in stocks driven by steady systematic investment plan (SIP) inflows, and having a finger on the pulse of Indian business fundamentals.
Domestic MFs witnessed net inflows of ₹5.15 trillion, which caused their average net equity assets under management to rise 8.5% to ₹33.26 trillion as of 29 August from ₹30.66 trillion as of 30 September end last year, data showed.
The asset value rose ₹2.6 trillion during this period against a net inflow of ₹5.15 trillion. This means the remaining ₹2.55 trillion or 49.6% of net inflow was absorbed by the correction in stocks held by the MFs. This was reflected by the fall in the benchmark Nifty 50 and broader Nifty 500 indices over the period.
In the case of the FPIs, the net outflows over the period stood at ₹3.27 trillion. Their equity assets fell 9.8% or ₹7.67 trillion from almost ₹78 trillion as of September-end last year to ₹70.33 trillion as of August-end 2025.
The net outflow of ₹3.27 trillion accounted for 43% of the fall in asset value ( ₹7.67 trillion), implying that 57% was contributed by the decline in the stock prices.
During this volatile period after a four-and-a-half-year bull market—which saw the Nifty compound 31% annually from 7,511.1 in March 2020 to 26277.35 by September 2024—the MF managers outperformed FPI fund managers by holding stocks that fell less or rose more than those owned by foreign investors.
“The Indian fund manager has his ear to the ground as opposed to the FPI manager who sits across the seven seas,” said Nilesh Shah, managing director of Kotak Mahindra Asset Management Co. “Added to this, MFs followed a bottom-up approach in select mid and small cap counters, which led to the outperformance over FPI money managers during this period .”
Domestic MF (passive and active fund ) ownership as a percentage of NSE-listed companies’ total market cap rose from 9.48% at the end of the September 2024 quarter to 10.6% at the end of the June quarter this year. Over the same period, FPI ownership fell from 17.7% to 17.3%.
According to Ashish Gupta, chief investment officer (equity) at Axis Mutual Fund, one of the many reasons for the MFs’ outperformance could be increasing ownership in stocks where they already had a presence amid the FPIs pruning their holdings in stocks they were overweight, while selling India in favour of another market.
For instance, in the case of State Bank of India, mutual funds increased their holdings from 11.46% at the end of the September quarter last year to 13.02% as of the June quarter this year .
In bellwether Infosys, FPIs pared their holdings from 33.28% to 31.92% over the same period.
The SBI share gained 5% from the end of September to close at ₹820.35 at the end of the June quarter. Infosys, on the other hand, saw its price decline 14.6% over the same period to ₹1,601.8.
Nirav Karkera, head of research at wealth management firm Fisdom, explained that during the recent market decline, FPIs had been on a selling spree, often through “chunky offloads,” which amplified their mark-to-market or unrealised losses.
In contrast, domestic institutional investors (DIIs) had been benefiting from steady inflows and sufficient dry-powder in the form of cash balances and fresh flows, which “not only offers a cushion effect to absorb volatility effectively, but also offers the ability to execute opportunistic buying at favourable levels during sharp sell-offs”.
He added that most FPIs had been exposed to segments highly sensitive to global macros and often top-down bets, while most DIIs’ latest portfolios have re-oriented portfolios towards segments largely operating within the more stable domestic ecosystem.
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