Indian investors piled into gold exchange-traded funds in January as prices soared amid rising geopolitical risk, surpassing flows into equity funds for the first time, industry data showed on Tuesday.
Last month saw gold climb to record high levels, double where it traded in January 2024 in dollar terms, while investors in Indian equities held back as an agreement to reduce tariffs on Indian exports to the U.S. had yet to be reached.
Gold ETFs are easier to buy and hold than physical gold and India is one of the world's biggest markets for the metal.
"We saw extreme volatility in the markets in January, particularly due to U.S. government's intervention in Venezuela and imposition of new tariffs," said Venkat Chalasani, chief executive at Association of Mutual Funds in India (AMFI).
Net inflows into Indian equity mutual funds fell 14.35% month-on-month to 240.29 billion rupees ($2.65 billion) - the second straight month of decline.
Flows to gold exchange-traded funds meanwhile, more than doubled from the previous month to 240.4 billion rupees, putting them just ahead of equity flows for the first time, AMFI data showed.
Systematic investment plans hold up
Equity mutual funds have seen uninterrupted monthly inflows since February 2021, powered by systematic investment plans (SIPs), government reforms and supportive central bank policy.
That steady domestic money has helped the market shrug off relentless foreign selling and turbo-charged a post-COVID rally in stocks.
Inflows into equities through SIPs remained largely unchanged from the previous month at 310.02 billion rupees in January, the data showed.
The benchmark Nifty 50 and Sensex dropped 3.1% and 3.5% in January, while the broader small-caps and mid-caps fell 4.7% and 3.4%, respectively.
On the other hand, spot gold prices rose about 13% during the month, marking their sixth consecutive monthly rise.
Changing investor behavior
"Investor behaviour is becoming more balanced and risk-aware, with allocations gradually shifting toward stability, diversification, and valuation comfort rather than aggressive positioning in slightly riskier segments," said Himanshu Srivastava, principal of manager research at Morningstar Investment Research India.
This also reflected in a 28% rise in inflows into large-cap equity schemes at 20.05 billion rupees, while inflows into mid-cap and small-cap schemes fell 23.7% and 23.1% month-on-month to 31.85 billion rupees and 29.42 billion rupees, respectively.
"Looking ahead, improving global cues following India-EU and India-U.S. trade developments, combined with stable domestic macros, should help investor sentiment improve," said Ankur Punj, managing director – business head at Equirus Wealth.
