Gold rallies 9% in July, but investors park Rs 1.4 lakh crore in money market funds: Vallum Capital

Gold delivered a strong 9% return in July, outperforming the broader equity market by a wide margin. However, investors did not appear to chase the rally in precious metals. Instead, a sharp rise in money market fund inflows suggests that investors preferred to move money towards safer assets, according to a monthly report by Vallum Capital.

Note, according to Vallum Capital, their classification differs from AMFI and is based on an internal framework. Their broad money market category aggregates funds and ETFs across micro-themes such as Liquid, Overnight, Money Market and Short Duration, recording net inflows of Rs 1.4 lakh crore in July 2026.

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Gold gained 9% during the month, with the rally triggered by a weaker-than-expected US jobs report that temporarily reduced expectations of another US Federal Reserve interest rate hike. The report also pointed to failed coordinated yen intervention as another factor supporting the move.

The rise was not limited to gold. Mining stocks gained even more, while precious metal funds recorded a strong month. However, the report highlights an important shift in investor behaviour: the money made from the gold rally was not subsequently reinvested into precious metals.

Precious metal fund inflows fell sharply from Rs 8,680 crore in June to Rs 4,084 crore in July. At the same time, money market funds saw a massive Rs 1,40,390 crore inflow in July, compared with an outflow of Rs 65,530 crore in the previous month.

Fixed-income funds also saw a reversal in investor flows. After recording outflows of Rs 53,006 crore in June, they attracted Rs 5,947 crore in July. This represents a monthly swing of Rs 58,954 crore.

According to Vallum Capital, the trend suggests that while markets moved higher, investors were increasingly directing money towards safety rather than chasing the rally.

Within the Indian market, the automobile and transport segments had an exceptional month, helped by India's first-ever 4-lakh passenger vehicle in July.

Technology stocks also recovered sharply as global investors rotated from Korean semiconductor stocks towards Indian software companies. However, technology funds witnessed an outflow of Rs 1,345 crore, indicating that investors were selling into the recovery rather than adding to their exposure.

Healthcare was a contrasting story, attracting Rs 737 crore in fresh money and extending its gains to 16.4% for the year.

PSU banks outperform private banks

Banking stocks also showed a clear divergence. PSU banks gained 3.8%, supported by strong quarterly results, while private banks declined 4%.

The report noted that the flow gap between the two segments widened sharply during the month. Meanwhile, PSU, railway and energy themes, which were among the market's more popular themes in the previous cycle, remained close to flat as they lacked a fresh catalyst.

Micro-cap funds emerged as the strongest performers, delivering a 4.6% return in one month. They were up 15.9% year-to-date and 12.7% over one year. Small-cap funds gained 2.8% during the month, with an 11.4% year-to-date return and 13.3% return over one year.

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Large-cap funds, on the other hand, were down 3.9% year-to-date. Despite the weaker performance, they attracted Rs 14,977 crore in July, an increase of Rs 5,291 crore from June, which suggests that investors continued to allocate money towards large-cap funds despite their weaker returns so far this year.

The report also highlighted a major shift in global technology markets. China's semiconductor ETF gained 24%, compared with a 31% decline for Korea's semiconductor ETF, creating a 55-point performance gap. Gold miners were another major global outperformer, delivering a 21% return during the month, nearly nine times the US market's return.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)

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