Domestic mutual funds increased their exposure to sectors such as capital goods and healthcare in May 2026, even as foreign investors continued to pull money out of Indian equities. According to Motilal Oswal Financial Services’ June 2026 Fund Folio report, fund managers shifted portfolios toward infrastructure, manufacturing and healthcare plays, while reducing allocations to oil & gas, PSU banks and select technology stocks.
Data compiled by Motilal Oswal Financial Services reveals that while volatile markets saw foreign institutional investors (FIIs) pull out USD 4.9 billion, domestic mutual funds stepped in firmly with inflows of USD 8.7 billion.
Created with AI. Errors are possibleCapital goods and healthcare takes center stage
The defensive and structural appeal of the pharmaceutical and healthcare industry led to an identical 30-basis-point monthly increase, pushing Healthcare weightage up to 7.8 per cent. Broadly, 14 different domestic mutual funds remain over-owned in the healthcare pocket.
“The investment landscape in May witnessed notable changes in sector and stock allocations,” the research report observed.
“On a MoM basis, the weights of Capital Goods, Healthcare, Automobiles, E-Commerce, NBFC – Non-Lending, and Cement increased.”
Oil & Gas, PSU banks fall from favor
While, fund managers hit the exit button on the commodity and energy space. The weight of the Oil & Gas sector within mutual fund portfolios slipped to a historic new low of 5.2 per cent, down 20 basis points from the prior month and contracting by a steep 100 basis points compared to last year. A staggering 19 mutual funds are currently under-owned in Oil & Gas compared to its baseline index weightage.
Public Sector Undertaking (PSU) Banks also faced liquidating pressure, with the sector’s overall weight declining to an eight-month low of 3.4 per cent. Technology, retail, and real estate similarly saw their weightages moderated by institutional asset managers.
Where the money moved: Big bets on Adani and private bankers
In individual stocks, fund managers did not hesitate to deployment capital into high-growth conglomerates and select large private financial institutions.
The top stock positions that witnessed the largest expansion in value MoM included:
According to the research, mutual funds trimmed their holdings or saw significant value erosions in state-owned banking behemoths and traditional Information Technology (IT) export giants.
The individual counters experiencing the sharpest contraction in portfolio value included:
“Divergent interests were clearly visible within sectors,” the report noted, highlighting that asset managers are cherry-picking growth champions over broad thematic indices.
Inflows Ebb into retail equity but SIPs hold firm
Total net equity inflows ebbed by 44.6 per cent MoM to reach a 12-month low of INR 238 billion in May 2026, compared to INR 431 billion in April.
While actual redemptions from mutual fund schemes decreased by 4.9 per cent to INR 425 billion, gross equity scheme sales plummeted by over 24 per cent to INR 664 billion.
Despite bleaker market sentiments that saw the Nifty 50 close 450 points lower, long-term retail money remains resilient. Systematic Investment Plans (SIPs) continued to act as a financial buffer, pulling in a strong INR 309.5 billion for the month.
This represents 16 per cent jump YoY, proving that while fund managers shift the chess pieces behind the scenes, regular Indian household savers are still firmly committed to the equity market.
