Big Money Moves: Mutual Funds and FIIs Go All-In on Key Sectors in May

May brought a wave of institutional investments into India's stock market, with mutual funds (MFs) and foreign institutional investors (FIIs) pumping in a whopping ₹78,500 crore. The top picks? Telecom, financial services, and the broader services sector. That’s the most significant monthly inflow we’ve seen since September 2023, according to ACE Equities and NSDL.

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Telecom Takes the Spotlight

Telecom stocks unexpectedly stole the show. MFs invested ₹5,730 crore, while FIIs went even bigger, adding ₹8,089 crore. Foreign portfolio inflows in the sector alone reached $946 million, the highest since April 2024, accounting for 41% of total FPI activity.

What’s fueling this surge? A mix of buzz around Bharti Airtel, speculation about consolidation in the sector, and some key moves by Vodafone Idea. Additionally, Singtel's massive ₹8,500 crore share sale opened the gates for liquidity, attracting more investors.

Financial Services: Mutual Funds Lead the Charge

Domestic investors made a significant investment in financial services, pouring in ₹17,370 crore. FIIs weren’t far behind, adding ₹4,028 crore. They also expanded into banking, capital goods, and oil and gas while trimming their IT holdings.

Why the interest? Banks are showing strong credit growth, better profit margins, and solid Q4 earnings. With expectations rising for FY26 and credit costs remaining in check, this sector is firmly in the investor sweet spot.

Services Sector: FIIs Find Their Favorite

Foreign Institutional Investors (FIIs) are increasingly investing in the services sector, with a total of ₹7,972 crore alongside ₹4,061 crore from mutual funds. Together, services and telecom made up 81% of May’s total FPI buying. From IT-enabled businesses to consumer and digital platforms, investors are seeing long-term potential, especially as global uncertainties push capital toward stable growth stories.

May also saw a surge in block and bulk trades, helping drive the month’s investment boom. Mutual funds snapped up over ₹29,000 crore through block deals, pushing total volumes past ₹50,000 crore, a nine-month high.

Some headline trades included ITC (₹7,880 crore), IndiGo’s parent InterGlobe Aviation (₹4,900 crore), and Bharti Airtel (₹5,345 crore). In many cases, MFs stepped in as promoters, while FIIs exited, resulting in a shake-up of ownership.

These block deals occur within a 15-minute window after the market opens, allowing large players, such as mutual funds (MFs), foreign institutional investors (FIIs), promoters, high-net-worth individuals (HNIs), and hedge funds, to trade without significantly impacting the broader market.

Overall Market Trends: Mid and Small Caps Shine

With the inflows came market gains: the Sensex rose 1.73%, and Nifty climbed 2.05%. However, mid-and small-cap stocks were the real stars, with the BSE Mid-Cap index jumping 5.6% and the Small-Cap index soaring 10.4%.

Meanwhile, SIPs hit a record ₹26,688 crore, with 8.56 crore active accounts. The total mutual fund assets under management (AUM) crossed ₹72 lakh crore, with equity AUM reaching ₹32 lakh crore.

Not all sectors were equally loved. FMCG saw ₹10,213 crore in MF inflows, but FIIs barely touched it (₹815 crore). In healthcare, MFs invested ₹3,029 crore, while FIIs withdrew ₹2,614 crore. Utilities also saw low FII activity despite ₹2,163 crore in MF inflows.

The takeaway? MFs are leaning toward defensive sectors, while FIIs are chasing high-growth stories.

What’s Next? Analysts Weigh In

Looking ahead, experts say future flows depend on a few big-picture trends:

• Global factors, including U.S. inflation, interest rate changes, and tariff talks with India (scheduled for before July 9), could influence investor sentiment.
• Earnings: Strong Q1 FY26 results, particularly in banking and services, could sustain momentum.
• Valuations: High block deal activity boosts liquidity, but overvaluation in certain pockets may cause some caution.

Final Take

May was a blockbuster month for institutional investing in India. With a record ₹78,500 crore flowing into telecom, financial services, and services, investor confidence is clearly on the rise. Between strategic block deals and rising SIP participation, India’s market story appears strong, but its next chapter depends on how the global and domestic landscapes evolve.