How Indian Equity Mutual Funds Adjusted Portfolios from Diwali 2025 to 2026

Between Diwali 2025 and Diwali 2026, Indian equity markets experienced a period marked by volatility and modest returns, challenging fund managers across the board. Despite the lackluster market performance, investor confidence remained strong, as reflected by substantial net inflows into actively managed equity mutual funds.

Throughout this year-long span, actively managed equity schemes attracted a total net inflow of ₹5.2 lakh crore. This steady influx of capital pushed the combined assets under management (AUM) of these funds from ₹31 lakh crore to ₹35.4 lakh crore. Rather than taking a passive stance during this uncertain period, fund managers actively rebalanced their portfolios, strategically increasing exposure to certain sectors and companies while cutting back on others.

The analysis covers 576 actively managed equity schemes spanning multiple categories, including large-cap, mid-cap, multi-cap, small-cap, flexi-cap, sectoral, thematic funds, ELSS, focused, value, and contra funds. A detailed comparison of portfolio disclosures from October 2025 and September 2026 reveals several notable trends in stock selection and sector preferences.

Exploring New Investment Opportunities

Fund managers demonstrated a willingness to venture into recently listed companies and emerging businesses. For example, Billionbrains Garage Ventures became a popular new addition, featuring in 129 funds. Mid-cap stocks such as Meesho and Lenskart Solutions were incorporated into 85 and 76 portfolios, respectively. In the small-cap space, Tenneco Clean Air India attracted attention, with 69 schemes adding it to their holdings.

These fresh inclusions suggest a strategy focused on tapping into growth potential offered by newer market entrants rather than relying solely on well-established companies. However, it is important to note that the number of funds holding a particular stock indicates widespread adoption but does not necessarily reflect the size of the investment in each portfolio.

Selective Trimming of Positions

While some stocks saw their aggregate shareholdings by mutual funds decline, the number of schemes holding these stocks often increased. For instance, ONGC experienced a 9.3 percent drop in total shares held by funds, yet the count of schemes owning ONGC rose from 55 to 85. This indicates that although some large investors reduced their stakes—likely to book profits or limit exposure—new or smaller allocations by other schemes helped maintain or broaden ownership.

Profit-taking was especially evident in stocks that had appreciated sharply, including Chennai Petroleum, Welspun Corp, and Hitachi Energy India. In these cases, fund managers appeared to lock in gains and manage portfolio risk by scaling back positions. Conversely, stocks like Wipro, HUDCO, and P&G Hygiene saw reductions amid weaker performance, reflecting cautious positioning in less favorable sectors.

Stocks Contributing to Fund Returns

Certain industries, such as industrial machinery, pharmaceuticals, engineering, and financial markets, drove positive returns for various funds during this time frame. For example, the Quant Focused Fund’s approximately 8 percent gain was partly due to a significant allocation of over 6 percent in Bharat Heavy Electricals Limited (BHEL). Similarly, the Samco Large & Mid Cap Fund, holding more than 8 percent in Laurus Labs, registered a gain exceeding 7 percent.

Strong price appreciation in these stocks was often coupled with growing participation across different funds, with some increasing their holdings. However, in some cases, funds reduced positions despite positive returns, as seen with Hitachi Energy India and Sansera Engineering. This behavior suggests ongoing profit-booking, particularly after favorable re-ratings, even while new investors continued to enter these stocks.

Stocks Facing Challenges

The analysis also highlights stocks under pressure due to sharp price corrections or worsening outlooks. Interestingly, mutual funds frequently increased both the quantity of shares held and the number of schemes owning these stocks, implying that some managers treated price dips as buying opportunities.

A prime example is Swiggy, which dropped 56.1 percent in value, yet the number of funds holding it surged from 80 to 134. Aggregate shares owned rose from 23.6 crore to 65.4 crore. Other similar cases include PB Fintech and HDFC Life, where funds expanded holdings despite adverse price movements.

Sectoral Shifts Toward Emerging Businesses

At the sector level, there was a clear trend of increasing investment in emerging, specialized, and platform-based companies. Holdings in aluminium and related products soared nearly eightfold, rising from ₹1,677 crore to ₹13,388 crore. Investments in medical equipment and supplies, trading, and fintech sectors also saw significant growth.

The sectors that lagged were typically mature commodity markets and yield-oriented segments. However, it is important to understand that changes in the value of holdings do not always translate directly into changes in allocation weights, as rising market prices alone can inflate holding values without additional purchases.

This period highlights how Indian equity mutual funds remain dynamic, adapting portfolios according to evolving market conditions and opportunities. The ability to identify new prospects, manage risks through selective trimming, and capitalize on sectoral growth areas reflects the active management approach that continues to attract investor confidence amid fluctuating markets.