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Inflows into India's equity mutual funds rose to a nearly two-year high in January, led by sustained interest in small-caps, data from the Association of Mutual Funds in India (AMFI) showed on Thursday.

Net equity mutual fund inflows rose 28% sequentially to 217.81 billion rupees ($2.62 billion), the highest since March 2022.

"Strong macroeconomic growth outlook, stable earnings have sustained investor interest in equity mutual funds across all segments," said Venkat Chalasani, chief executive of AMFI.

Small-cap funds recorded the highest investments among equity-oriented schemes for the 16th straight month at 32.57 billion rupees.

Inflows into mid-caps rose 48% month-on-month to 20.61 billion rupees, while large-caps inflows hit a 19-month high in January.

"It is advisable for investors to increase their allocations to large-caps, but money will continue to move to small- and mid-caps ahead of elections on expectations of strong near-term returns," said Aishvarya Dadheech, founder and chief executive of Fident Asset Management.

So far in 2024, small- and mid-caps have jumped 9.5% and 14.8%, respectively, outperforming the benchmark Nifty 50's 0.3% rise.

Specifically, there will be buying in sectors that benefit from policy continuity over the next few months, Dadheech added.

This is the 35th consecutive month of equity inflows on a net basis.

The sustained domestic inflows limited losses in India's benchmarks, which witnessed selling by foreign portfolio investors in January, mainly in financials after the lacklustre results of HDFC Bank.

The Nifty 50 was down 0.03% in January while the Sensex shed 0.68%.

Contributions into systematic investment plans (SIPs) - in which investors make regular payments into mutual funds - hit a new record of 188.30 billion rupees last month, with the number of SIP accounts also climbing to a new high of 79.20 million.

($1 = 82.9820 Indian rupees)