HOW WE ARRIVED AT THE SECTOR PREFERENCE RANKINGS OF MF

HOW WE ARRIVED AT THE SECTOR PREFERENCE RANKINGS OF MF

March 2026 may have been a tough month for mutual funds, but it is these kinds of times that actually separate the men from the boys. March saw a huge sell-off in the market by FPIs and as a result, the Nifty fell nearly 10% during the month. Obviously, that has also impacted the Mutual Fund AUM values. However, it is not the macro picture but the sector wise details that would be of greater interest.

For instance, while March saw selling across sectors, there were sectors like telecom, that actually saw the AUM going up marginally, while other sectors like Retail, Power, and Metals & Mining saw very marginal fall in AUM. However, there are two interesting aspects to consider here. Firstly, you need to capture the short-term momentum and the longer-term AUM trend. Secondly, you need to give weightage to rupee change and to percentage change. Otherwise, there is the risk of being partial or unfair to the large sectors.

So, we devised a composite measure that will rank the sectors shifts on 4 parameters. MOM change in Rupee AUM, Percentage change in AUM MOM, YOY change in Rupee AUM, and Percentage change in AUM YOY. These 4 ranks are combined and an average composite rank is used. The table looks at the mutual fund sector preferences on this composite rank.

SECTORAL PREFERENCES OF MUTUAL FUNDS – MARCH 2026

The table below captures the composite rankings of the sectoral preferences of mutual funds on 4 parameters as described below from the fifth to eighth column. The combined rank is an average of the four ranks. The sectors with the best ranks are the most preferred sectors for mutual funds.

Let look at some key takeaways from the combined rankings of sector preferences above.

The big story is that none of the heavyweight sectors appear in the top 15, with Pharma being the only possible exception. Otherwise, sectors like Banking, Financial Services, Automobiles, IT, FMCG, Oil & Gas are all missing in the top-15 list.

One reason cold be that the selling was predominantly selling on the index stocks by the FPIs, which resulted in deep cuts in AUM for the large caps. Pharma has managed to make an appearance, largely due to its defensive properties.

In the top-5, diamonds & jewellery may still be very small in terms of size. But the other 3 are sizable sectors; including Retail, Power, and Metals & Mining. These 4 sectors, along with telecom at the top, were the preferred sectors for mutual funds in Mar-26.

In the third set of companies (ranked 11-15) on the combined rankings, you have sectors that have borne the brunt of the US-Iran war. For instance, Agri, Aviation, Plastics, and Chemicals have all been hit by supply chain constraints due to the war in West Asia.

In the middle segment (ranked 06-10), you have sectors that could potentially benefit from the war situation. For instance, capital goods will see orders flows; while shipping and pharma are likely to see better business leverage.

The sectoral rankings on four combined parameters gives a clear classification of 3 sets of industry groups. There are the favourites, the potential gainers from the war, with the sectors being hit by the war in the last group.