Mutual Funds Boost Holdings in Private Banks, NBFCs, Healthcare & Telecom in Feb

MFs Reduce Stake in PSU Banks, Capital Goods, Auto, and Oil & Gas

Mutual funds (MFs) reallocated their portfolios in February 2025, increasing exposure to private banks, non-banking financial companies (NBFCs), healthcare, telecom, and metals, while reducing their stake in capital goods, technology, automobiles, oil & gas, PSU banks, utilities, and retail.

This shift in allocation came during a month when the benchmark Nifty 50 index lost nearly 6%, reflecting cautious investment behavior amid market volatility, according to a Motilal Oswal Financial Services report.

Highlights:

• Private banks continued to hold the highest sector weightage at 18.5% in mutual fund portfolios.
• Technology sector weightage declined to 9.3%, a drop of 30 basis points (bps) month-on-month (MoM).
• Auto sector allocation fell to 8.1%, its lowest in 19 months.
• Capital goods weightage dropped 60 bps MoM and 90 bps year-on-year (YoY) to 6.8%.
• Mutual funds were net buyers in 70% of Nifty 50 stocks.
• Among midcap and smallcap stocks, MFs were net buyers in 58% and 67% of stocks, respectively.

Mutual Fund Sector Allocation Trends

Top Sectors with Increased MF Investment

Mutual funds increased their exposure in the following key sectors:

• Private banks (18.5% sector weightage, highest among all)
• Healthcare (7.6%)
• NBFCs
• Telecom
• Metals

Among Nifty 50 stocks, the top MoM net buying trends included:

• Dr Reddy’s Laboratories (+12%)
• Apollo Hospitals (+11%)
• Ultratech Cement (+8%)
• Tata Consultancy Services (TCS) (+7.1%)

Among Nifty Midcap 100 stocks, mutual funds were net buyers in:

• Yes Bank
• IDFC First Bank
• Prestige Estates
• Bandhan Bank
• AU Small Finance Bank

Among Nifty Smallcap 100 stocks, MFs were net buyers in:

• Happiest Minds
• Signature Global
• Action Construction
• IIFL Finance
• Glenmark Pharmaceuticals

Sectors Where Mutual Fund Holdings Declined

Mutual funds trimmed their stake in several key sectors, reflecting a shift in investment strategy:

• Technology stocks fell to 9.3% weightage (-30 bps MoM, -20 bps YoY).
• Automobile sector allocation dropped to 8.1%, the lowest in 19 months (-30 bps MoM, -10 bps YoY).
• Capital goods weightage fell to 6.8% (-60 bps MoM, -90 bps YoY).
• PSU banks, oil & gas, consumer, utilities, and retail sectors also saw a decline in MF holdings.

MF Ownership vs. BSE 200 Index

The report highlighted sectors where mutual funds were underweight or overweight compared to the BSE 200 index:

• Under-owned sectors (MFs holding 1% lower than BSE 200)

  • Consumer (17 funds under-owned)
  • Oil & gas (17 funds under-owned)
  • Private banks (16 funds under-owned)
  • Technology (12 funds under-owned)
  • Utilities (12 funds under-owned)

• Over-owned sectors (MFs holding 1% higher than BSE 200)

  • Healthcare (16 funds over-owned)
  • Capital goods (11 funds over-owned)
  • Chemicals (10 funds over-owned)
  • Consumer durables (10 funds over-owned)
  • Retail (9 funds over-owned)

Market Implications and Investment Strategy

1. Growing Interest in Private Banks and NBFCs

Private banks maintained the highest sector weightage (18.5%), signaling strong confidence in the banking sector, particularly private lenders. Rising credit demand and improving financial sector performance likely influenced the surge in MF exposure to private banks and NBFCs.

2. Healthcare Emerges as a Key Investment Theme

Mutual funds increased their stake in healthcare stocks, making it one of the top over-owned sectors. Investments in Dr Reddy’s Labs and Apollo Hospitals suggest that fund managers see strong growth potential in pharmaceuticals and hospital chains.

3. Shift Away from Capital Goods and Automobiles

MFs cut their exposure to capital goods, auto stocks, and technology. Auto sector weightage hit a 19-month low, reflecting concerns over slowing demand, rising interest rates, and global supply chain issues.

4. Selective Buying in Midcap and Smallcap Stocks

While mutual funds remained net buyers in the broader market, they were more selective in midcap and smallcap investments, focusing on sectors such as finance, real estate, and IT services.

5. Telecom and Metal Sectors Gain Traction

The increased allocation in telecom and metals suggests optimism around 5G expansion, infrastructure spending, and global commodity demand.

As mutual funds rebalance their portfolios, sectoral trends indicate a cautious yet selective approach, with a focus on private banks, healthcare, and NBFCs, while reducing exposure to capital goods, auto, and PSU banks.