WHAT EXACTLY SHOULD SECTORAL PREFERENCES CAPTURE?

WHAT EXACTLY SHOULD SECTORAL PREFERENCES CAPTURE?

That is actually a tough call. How do we define the sectors preferred by mutual funds? We can look at a long-term view or a short-term view. For instance, sector preferences in a month compared to sector preference shifts in a year. Then there is the parameter to be used. We can look at absolute gains or percentage gains. Here again, it can work both ways.

Looking at rupee gains in sectoral holdings helps us focus on the sectors that are really material. However, in the process you miss out the smaller winners. Hence, we have considered the long-term (one-year shift) as well as the short term (one-month shift). We have considered the rupee gains and also the percentage gains.

What we present below is the combined rankings. These are the sectors where there is the maximum traction in terms of mutual fund sectoral preferences. Change in AUM is a function of fresh flows and capital accretion. However, it is a good approximation of which way the wind is blowing in terms of sectoral preferences of mutual funds.

SECTORAL PREFERENCES OF MUTUAL FUNDS – APRIL 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.

The above combined rank does not reflect anything in isolation. What it tells us which way the winds of mutual fund sectoral preferences are blowing. Let look at some key takeaways from the combined rankings of sector preferences above.

After a gap of few months, the banking and financial services sector is back in the top-5 sectors in terms of sectoral preferences. Even as FPIs continued to sell banks, the domestic mutual funds have been aggressively buying private banks and PSU banks.

Several sectors have appeared in the list as a direct beneficiary of the ongoing US-Iran war and the resultant supply chain constraints. Sectors like Shipping & Logistics, healthcare, and chemicals have been direct beneficiaries of the crisis in the Gulf.

Capital goods, retail, and power have continued to be among the preferred sectors for mutual funds. These were sectors where mutual funds were relatively underexposed, and we have been seeing a lot of compensatory buying in these sectors by mutual funds.

Overall mutual fund equity holdings have gone up steady in the last 1 year. For instance, the current MF equity AUM at ₹51.44 Trillion is 19.0% above the AUM level last year, and 11.2% above the AUM level last month. April saw a sharp recovery in markets.

Among the lagging sectors; IT services, cement, textiles, aviation, and oil & gas have struggled for obvious reasons. Mutual funds have been wary of oil-related stocks due to their deep vulnerability to the blockade of the Straits of Hormuz.

The sectoral rankings on four combined parameters gives a clear classification of the sectors that have been preferred by mutual funds on multiple parameters. For now, the new favourites remain the same.