Mutual Funds, FIIs Pour Into Telecom, Financials in May Amid Block Deal Surge

India’s equity markets witnessed a dramatic rise in institutional activity during May 2025, marking the strongest inflow in eight months. Combined data from ACE Equities and NSDL revealed that domestic mutual funds and foreign institutional investors (FIIs) collectively poured over ₹78,500 crore into the Indian equity markets. The surge was primarily driven by aggressive investments into telecom, financial services, and the broader services sector, with investors capitalising on a significant spike in block deals and promoter-led divestments. The bullish institutional sentiment was further reflected in the robust performance of benchmark indices and a notable outperformance in mid- and small-cap segments, underscoring a month of deep liquidity and strategic capital deployment across multiple sectors.

Telecom Emerges as the Institutional Favourite with Dual Inflows from MFs and FIIs

The telecom sector was one of the biggest beneficiaries of institutional attention in May, witnessing inflows of ₹13,819 crore combined from mutual funds and FIIs. According to ACE Equities, domestic mutual funds deployed over ₹5,730 crore in telecom stocks, while NSDL data confirmed that FIIs contributed a hefty ₹8,089 crore. This marks one of the highest monthly inflows into the sector in recent years, highlighting investor conviction in telecom’s long-term growth narrative. Analysts cite improving ARPU (average revenue per user), accelerating 5G rollout, and regulatory stability as core drivers behind the renewed enthusiasm. The resurgence of institutional interest has also coincided with increased promoter stake monetisation across listed telecom entities, creating sizable opportunities through block trades that were promptly absorbed by long-term investors.

Highlights:

• Telecom saw ₹13,819 crore inflow—₹5,730 crore by MFs and ₹8,089 crore by FIIs.

• Rising ARPU and 5G expansion bolstered investor interest.

• Promoter stake sales in telecom stocks attracted strong institutional demand.

• Sector recorded one of the highest institutional inflows in recent quarters.

Read more : Sensex Jumps 600 Points, Nifty Tops 24,900 on Trade Hopes, Global Optimism

Financial Services Sector Leads Domestic Mutual Fund Investments by a Wide Margin

The financial services sector garnered the highest allocation from domestic mutual funds during May, with investments amounting to ₹17,370 crore. In comparison, FIIs contributed ₹4,028 crore to the same sector, making financials the most sought-after segment by both classes of institutional investors. This surge in capital deployment is attributed to stabilising interest rate expectations following the Reserve Bank of India’s dovish stance and a strong credit growth outlook in both retail and SME lending. Insurance, non-banking financial companies (NBFCs), and private sector banks attracted the bulk of the inflows. Analysts suggest that increased confidence in asset quality, along with improving margins, has positioned financials as a structural long-term bet in investor portfolios, particularly for fund managers realigning allocations post-RBI’s 100 bps repo rate cut.

Highlights:

• Mutual funds invested ₹17,370 crore in financials; FIIs added ₹4,028 crore.

• RBI’s dovish rate outlook improved confidence in the sector.

• Lending momentum and margin stability attracted inflows.

• Insurance and NBFCs featured prominently in institutional portfolios.

Services Sector Gains Momentum with Balanced Participation from MFs and FIIs

A notable shift in May’s investment pattern was the rising traction in the services sector, which saw a balanced inflow profile from both mutual funds and FIIs. Mutual funds invested ₹4,061 crore, while FIIs infused ₹7,972 crore, as per combined institutional data. This reflects a growing appetite for stocks aligned with India’s digital economy, IT services, logistics, and consulting sectors, many of which reported strong earnings in Q4 FY25. Analysts highlight that this sector has benefited from global digital transformation trends, a rebound in tech outsourcing, and stable INR-dollar dynamics. The services sector has also emerged as a preferred proxy for global growth recovery plays, particularly as Western central banks near the end of their tightening cycles.

Highlights:

• Total institutional inflows into services sector exceeded ₹12,000 crore.

• Balanced participation: ₹4,061 crore from MFs and ₹7,972 crore from FIIs.

• IT, digital, and logistics stocks drove the momentum.

• Global tech rebound and stable rupee supported investor confidence.

FMCG and Healthcare Show Contrasting Trends in Institutional Behavior

While the FMCG sector attracted significant capital from mutual funds in May—₹10,213 crore to be precise—foreign investors remained largely indifferent, investing only ₹815 crore. The disparity reflects differing strategic priorities, with domestic funds focusing on consumption resilience, while FIIs appeared to prefer sectors with higher cyclical upside. Conversely, the healthcare sector experienced a divergent trend, with FIIs pulling out ₹2,614 crore even as mutual funds remained net buyers, adding ₹3,029 crore. The FII exit from healthcare is being attributed to profit booking and rotation towards high-growth segments, while mutual funds continued accumulating defensive healthcare stocks in anticipation of regulatory easing and a potential uptick in exports. These divergences underscore the nuanced sectoral strategies employed by domestic and foreign institutions amid evolving market dynamics.

Highlights:

• FMCG saw ₹10,213 crore MF inflows but only ₹815 crore from FIIs.

• Healthcare witnessed FII outflows of ₹2,614 crore but MF inflows of ₹3,029 crore.

• Sector rotation and valuation concerns influenced FII exits.

• Domestic funds leaned into defensives amid global volatility.

Utilities See Mild Interest Amid Sectoral Rotation and Defensive Positioning

The utilities sector saw relatively subdued institutional interest, with mutual funds investing ₹2,163 crore and FIIs contributing a marginal ₹23 crore. Despite its importance in energy security and infrastructure development, utilities remained underweight in institutional portfolios for May. Analysts believe that investors are cautious of stretched valuations and the limited upside in regulated returns during periods of market expansion. Additionally, the sector’s traditionally defensive nature may have been less appealing in a month dominated by growth-focused themes. Nonetheless, select green energy and power distribution companies saw moderate accumulation, especially where expansion plans aligned with India’s energy transition roadmap. Institutional focus may shift back to this space in H2 FY26 if volatility resurfaces or bond yields begin to rise again.

Highlights:

• Utilities attracted ₹2,163 crore from MFs and ₹23 crore from FIIs.

• Sector underperformed due to risk-on sentiment favoring growth stocks.

• Green energy players saw selective buying interest.

• Defensive nature of utilities less attractive amid bullish market tone.

Record Institutional Inflows Driven by Spike in Block Deals and Promoter Selling

May’s record institutional inflows were underpinned by an extraordinary spike in block deals and promoter-led stake sales, which exceeded ₹50,000 crore—the highest since August 2024. Analysts attribute this capital market dynamism to a confluence of rising valuations, liquidity appetite, and promoter intent to capitalise on the ongoing rally. The deals created attractive large-volume entry points for both FIIs and mutual funds, leading to accelerated deployment across core sectors. This structural liquidity shift coincided with robust index gains: the Sensex surged 1.73% and Nifty rose 2.05%, while the BSE Midcap and Smallcap indices outperformed with gains of 5.6% and 10.4%, respectively. Such momentum has reaffirmed investor faith in India’s economic trajectory and corporate earnings resilience amid a globally turbulent macro backdrop.

Highlights:

• Promoter-led deals topped ₹50,000 crore—highest since August 2024.

• Institutional inflows into equities exceeded ₹78,500 crore in May.

• Midcap and smallcap indices outperformed benchmark gains.

• Liquidity and attractive valuations drove heightened deal activity.

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