Devina Mehra: MF inflows lag markets – here's the data

Investors know the right move: buy when prices are low, book profits when they peak. The actual data tells a different story. Devina Mehra, founder of First Global, walked through two decades of Indian mutual fund inflow numbers in a Mint column. The pattern is consistent across every major cycle. Flows rise after rallies and fall after crashes. The lag is structural, not accidental.

The 2004–07 bull market saw the BSE 500 TRI quadruple from roughly 2,000 to near 8,000. Monthly equity MF inflows more than doubled, from about ₹5,000 crore to ₹11,000 crore. The strongest inflows arrived after the market had already rallied. Then came the 2008 global financial crisis. Indian indices fell 60–65%. Monthly equity inflows crashed from ₹11,000 crore to ₹4,000–5,000 crore after the correction, not before. The 2009 recovery brought a sharp rebound in indices. Inflows recovered only gradually, with a lag.

The same pattern repeated after 2020. Monthly equity inflows rose to ₹25,000–40,000 crore, up 230–320% from the previous range. The 2025-26 correction has seen those inflows moderate from about ₹40,000 crore to ₹25,000–30,000 crore. In every instance, the flow change followed the market move.

Mehra called out a specific piece of analysis she considers preposterous: the suggestion that MF inflows give foreign portfolio investors an exit path, and that curbing retail inflows would stop that. "Never mind that all data shows MF inflows and outflows lag rather than lead market movements," she wrote. "Inflows after market peaks have never prevented crashes. Even drastically reduced inflows after crashes have never held back the next bull market."

She applied the same skepticism to FPI flow analysis. Erudite commentators write long analyses about why FPI flows will go up or down and what that means for Indian markets, she said, as if the causal link is obvious. "Where did this conclusion come from? Who has tested it and proven it correct?" She pointed to the biggest contra example. FPIs first came to India three decades ago as large institutional investors, at a time when there was no domestic fund management industry and little retail participation. Tens of billions of dollars flowed in from 1994 onwards. "It should have driven the market crazy," she wrote. "Yet 1994 to 2003 is the only nine-year period in Indian market history that delivered a net-zero Sensex return."

The behavior is not limited to equities. Inflows into gold funds peaked in January 2026, exceeding even equity MF inflows. Since then, the rupee has depreciated against the dollar and India's import duty on gold has risen. The rupee price of gold is down. The fall is larger in dollars. "Predictably, gold investors have begun to head out," Mehra wrote.

Her practical advice: be careful when making money appears too easy. Hold on when you feel panicky. "Investors and fund managers often do the exact opposite," she said. She recalled fund managers who advised selling "unproductive" gold and buying shares in 2024, then promoted gold funds by the end of 2025.

The data is the antidote to narrative-driven analysis. Flows are a lagging indicator, not a leading one. Anyone building a watchlist around MF or FPI flows as a market-timing signal is relying on the wrong relationship. The 1994–2003 net-zero Sensex return, despite tens of billions in FPI inflows, is the kind of fact that should stop that argument cold.