Healthcare Sector Weight Reaches 8-Month High as Mutual Funds Favour Defensive Stocks over Cyclicals

Mutual Funds Increase Weightage in Healthcare Sector

The healthcare sector has seen significant traction in mutual fund (MF) weightage during the month of March, with its portfolio weight rising for the second consecutive month to an eight-month high. Latest fund house data from Motilal Oswal Financial Services' Fund Folio report shows that the weightage for the healthcare segment increased to 7.8 percent, up 50 basis points (bps) month-on-month and 10 bps year-on-year.

This buying comes despite the Nifty Healthcare index delivering a return of around -4.5 percent in March, with valuations still elevated at roughly 35 times earnings. This indicates a preference for defensive plays and earnings visibility over near-term performance. The ongoing geopolitical conflict has continued to impact benchmark indices, with Sensex and Nifty down nearly 11 percent each in March. The BSE 200, BSE Midcap 150 index, and BSE SmallCap 250 index were also down nearly 10 percent each.

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Mutual funds remained overweight on non-lending NBFCs, healthcare, chemicals, consumer durables, and automobiles, with at least 1 percent higher ownership versus the benchmark. On the other hand, oil & gas continued to be the most under-owned sector, with 19 funds holding positions at least 1 percent below benchmark weights.

In March, healthcare alone saw 12 funds holding overweight positions out of a total 20 funds analyzed by the report. Several fund houses have taken strong active bets on the sector, led by Invesco Mutual Fund India and Quant Mutual Fund, both with allocations of 12.6%, significantly above benchmark levels. Other fund houses that remain closer to benchmark or underweight include ICICI Prudential Mutual Fund (6.6%), Aditya Birla Sun Life AMC (6.6%), and SBI Mutual Fund (5.8%), which is in line with the index.

Motilal Oswal Mutual Fund stands out as relatively underweight at 4.7%. Fund managers had previously noted that MFs have been gradually increasing weightage over the last year as the sector remains a structurally strong sector even as other sectors have been facing market volatility.

Apart from healthcare, technology also saw a rebound, with the sector's weight rising to 7.3 percent in March, up 40 bps sequentially, though it remains 150 bps lower compared to a year ago. Utilities extended their gradual uptrend, with allocations rising for the fourth straight month to a 17-month high of 3.7 percent, up 20 bps MoM.

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Some sectors that have previously seen a sharp run-up witnessed moderation. Automobile exposure eased to 8.5 percent in March, down 40 bps MoM after hitting a 19-month high in February, though still higher by 50 bps on a yearly basis. Private banks too saw some trimming, with weights declining to 17.6 percent, down 60 bps MoM and 70 bps YoY, after touching a nine-month high in the previous month.

Despite the reduction, private banks remained the largest sector holding in mutual fund portfolios at 17.6 percent, followed by automobiles (8.5 percent), healthcare (7.8 percent), and technology (7.3 percent). Mutual funds also increased weights across utilities, telecom, consumer, oil & gas, metals, e-commerce, and non-lending NBFCs. On the other hand, PSU banks, capital goods, lending NBFCs, insurance, cement, and consumer durables also saw a moderation in weights.