Pharma Still Tops Mutual Fund Bets, as IT and Metals See Renewed Interest

Mutual funds in India largely held on to their pharma exposure in September 2025, even as fund managers began rotating money into information technology (IT) and metals, according to Elara Capital’s latest Domestic Liquidity Tracker.

While inflows into equity schemes slowed after two months of strong growth, fund positioning reveals that sector preferences are starting to shift again, from defensives to cyclicals.

1. Pharma Remains the Most Overowned Sector

Pharma remained the most overweight sector, holding steady at +1.0% of AUM, unchanged from August.
Despite muted near-term returns, mutual funds have maintained faith in the sector’s defensive earnings and export potential.

• HDFC Mutual Fund: +3.3% overweight
• ICICI Prudential Mutual Fund: +1.8% overweight
• SBI Mutual Fund: +0.2% overweight

Pharma has been the consistent leader since early 2024, supported by strong balance sheets and steady global demand.

2. Domestic Themes Stay Strong: Auto Ancillaries and Retailing

After pharma, Auto Ancillaries and Retailing followed with +0.8% overweight each.
These allocations reflect fund managers’ continued confidence in India’s consumption and manufacturing recovery, themes that have driven fund inflows for the past year.

3. IT Turns a Corner — Gradually Turning Overweight

The biggest change in September came from Information Technology.
The sector’s overweight position improved from +0.3% in August to +0.6% in October, marking the first sustained reversal since early 2024.

• ICICI Prudential MF: +2.5% overweight
• Mirae Asset MF: +3.2% overweight
• Axis MF: +2.6% overweight

According to Elara, “IT is gradually turning overweight”, suggesting that mutual funds see value returning to large-cap IT after a long correction.
Some funds trimmed FMCG positions to rotate into IT, anticipating a potential turnaround in global tech spending.

4. FMCG and NBFCs Lose Favour

Both FMCG and NBFCs continued to see reduced exposure.

• FMCG: Underweight widened slightly to –1.8%, as fund managers booked profits amid stretched valuations and slower volume recovery.
• NBFCs: Remained the most under-owned group (–1.8%), with notable underweights by:
  
  • HDFC MF (–4.1%)
  • ICICI Prudential MF (–5.5%)
  • Kotak MF (–2.3%)

High valuations and regulatory overhangs appear to be keeping fund managers cautious toward non-bank lenders.

5. Metals See Early Signs of Turnaround

Although still underweight (–1.3%), metals are showing signs of a comeback.
The positioning improved from –1.6% in August, as select funds added exposure to steel and aluminium companies amid firmer commodity prices and improving industrial demand.

Elara noted, “Metals remain under-owned, but alpha is beginning to emerge,” suggesting a gradual shift in sentiment among contrarian managers.

6. Fund-House Highlights

HDFC Mutual Fund

• Strongest overweight in banks (+8.8%), led by ICICI Bank, Axis Bank, and HDFC Bank.
• Continued overweight in pharma (+3.3%); added Sun Pharma and Cipla.
• Trimmed Infosys and TCS exposure (–0.6% in IT).
• Underweight in NBFCs (–4.1%) and broader financials (–3.2%).

Axis Mutual Fund

• Maintained an overweight in IT (+2.6%) with positions in TCS, Infosys, and Tech Mahindra.
• Marginally added HCL Tech and Tata Elxsi.
• Reduced FMCG exposure (–0.7%), trimming HUL and Nestlé India.

SBI Mutual Fund

• Overweight in auto ancillaries (+1.2%), PSU banks (+0.4%), and FMCG (+0.7%).
• Underweight in IT (–2.7%).
• Added Eicher Motors, Bosch, Ashok Leyland, ITC, Bank of Baroda, and Canara Bank.

7. What This Means for Investors

• Pharma’s leadership continues, but valuations are no longer cheap.
• IT’s slow re-rating could be the next area of alpha for mutual funds.
• Cyclical recovery in metals and autos signals a broader rotation toward manufacturing and industrial plays.
• NBFC underweights highlight continued caution despite sectoral growth.

Overall, fund managers appear to be shifting from defensive to balanced exposure, combining stable sectors like pharma with cyclical bets in IT and metals, a setup that reflects confidence in India’s medium-term growth, even amid global uncertainties.

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