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Inflows into India's equity mutual funds moderated in March as small-caps saw outflows for the first time since September 2021, while investors revived interest in large-cap funds.

Net equity mutual fund inflows dropped 16% sequentially to 226.33 billion rupees (about $2.7 billion), data from the Association of Mutual Funds in India (AMFI) showed on Wednesday.

While the slight moderation in equity mutual fund inflows could be due to redemptions that happen at the end of the financial year, the positive net inflows indicate that investors remained positive on Indian equities, said Venkat Chalasani, chief executive of AMFI.

Domestic equity mutual funds have seen net inflows aggregating to 5.04 trillion rupees over the last 37 months, well above net foreign inflows worth 410.42 billion rupees, over the same period.

The benchmark NSE Nifty 50 has risen about 54% over the last 37 months, aided by mutual fund inflows.

While the net flows were positive, there was a marked change in pattern.

Small-cap funds, which have led the inflows over the last 17 months, saw outflows of 0.94 billion rupees in March.

Mid-cap funds saw inflows worth 10.18 billion rupees, dropping 44% from the previous month, while large-caps saw inflows rise 131% sequentially to 21.28 billion rupees, a 21-month high.

"The outflow from small-caps was triggered by concerns of froth raised by the markets regulator, which led more funds to move a large chunk of their portfolio to large-cap stocks," said Puneet Sharma, chief executive and fund manager at asset management firm Whitespace Alpha.

Small- and mid-cap indexes dropped 4.41% and 0.54%, respectively, in March.

Aided by the re-allocation of funds into large-caps, the benchmark Nifty 50 added 1.57% in March, outperforming the broader market indexes.

Contributions into systematic investment plans (SIPs) hit a record high of 192.71 billion rupees in March, hitting all-time highs for the 15th time in 18 months.

($1 = 83.1625 Indian rupees)