Mutual funds allocated around 7.3% of their portfolios to healthcare, making it the fourth largest sectoral exposures, after private banks, automobiles, and capital goods. This also reflects a notable rise in allocation during the month, as healthcare was among the sectors that saw the maximum increase in weightage on a MoM basis.
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In comparison to benchmark – BSE 200 where the allocation in healthcare sector was 5.4% in February, mutual funds remain overweight with at least 15 fund houses holding higher exposure to the sector than its index weight.
“The top sectors where MF ownership vs. the BSE 200 was at least 1% higher wereHealthcare (15 funds over-owned), NBFC –Non Lending (14 funds over-owned), Consumer Durables (10 funds over-owned), Chemicals (9 funds over-owned), and NBFC -Lending (8 funds over-owned),” the report said.
Why are mutual funds overweight on the healthcare sector
Market experts believe that sectors’ strong earnings visibility, export opportunities in pharmaceuticals, along with rise in insurance penetration are the key factors driving the increased allocation to healthcare right now.
Pallav Agarwal, Certified Financial Planner, Bhava Services LLP shared with ETMutualFunds that there are several factors which are driving increased allocation, mainly being, rising awareness towards healthcare, rise in insurance penetration, increasing hospital network on the domestic side, along with, India’s role as a major exporter of generic drugs.
For small molecules, India is the 2nd largest CDMO player globally, which is also acting as a tailwind for this sector, Agarwal said.
Shivam Pathak, CFP and Founder of Asset Elixir told ETMutualFunds that mutual funds are overweight on healthcare mainly due to the sector’s strong earnings visibility, export opportunities in pharmaceuticals, and relatively defensive nature during market volatility.
The sector also benefits from structural demand driven by ageing populations, rising healthcare spending, and growth in generics and specialty drugs, Pathak further said.
Among these 15 funds were – Bandhan Mutual Fund where the allocation was 8.7% and Canara Robeco Mutual Fund where the allocation was 7.5% in February. Some fund houses such as Axis Mutual Fund, DSP Mutual Fund, Mirae Asset Mutual Fund the allocation was close to 10%.
On the other hand, fund houses such as Invesco Mutual Fund and Quant Mutual Fund had an allocation of 13.1% and 11.7% respectively in the month of February 2026.
Should investors jump in?
With mutual funds increasing allocation in the healthcare sector and should investors jump in, Pathak said that investors should avoid aggressively increasing allocation at current levels if they already have exposure and healthcare can provide stability in portfolios, but sectoral concentration increases risk so it is better to keep exposure moderate and aligned with overall asset allocation.
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Agarwal said that investors may look at this sector for some allocation. However, the allocation should not be very high due to US FDA related regulatory risk and uncertain tariff policy
At a fund level too, healthcare remains a meaningful allocation. For instance, some portfolios show healthcare exposure in the range of nearly 7–10% within their top sector allocations, reinforcing its position as a core portfolio component.
In the month of February, Nifty Healthcare Index gained 7.74% whereas Nifty Healthcare Index – TRI gained 7.94%.
According to a report by Motilal Oswal Mutual Fund, on a one-year basis, Defence has been the standout performer with returns of 58.36%, followed by Metals at 48.93% and Auto at 37.37%. Banks and Energy also delivered solid annual returns of 25.20% and 23.41% respectively. Healthcare added 17.23% over the year.
The report further said that Nifty 500 rose 0.38%, supported by strong contributions from Industrials, Healthcare & Consumer Discretionary. However, gains were largely offset by a sharp negative impact from the IT sector.
Exposure through sectoral funds or diversified equity funds?
Agarwal said that the valuations of these sectors are reasonable after a healthy correction in 2025 and investors who have a time horizon of 4-5 years and can withstand some volatility, may look at sectoral funds while most of the investors would be better off by taking exposure through diversified funds and trust the fund managers to take over or underweight calls on the sector.
Pathak said that valuations in parts of the healthcare sector have moved up after the recent rally, though some segments still offer reasonable opportunities and for most investors, exposure through diversified equity funds is preferable rather than taking concentrated bets through sectoral funds.
There are nearly 26 funds based on this sector which includes mostly passive funds. In the month of February, these funds gave an average return of 6%. ICICI Pru Nifty Healthcare ETF and Aditya Birla SL Nifty Healthcare ETF gave the highest return of around 7.93% each.
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DSP Healthcare Fund, an actively managed fund, gave the lowest return of 2.17% in the month of February.
Way ahead for healthcare sector
Looking at the past performance of these funds, Pathak said that segments like specialty pharma, contract research and manufacturing (CRAMS), and diagnostics continue to show strong growth potential and overall, the healthcare sector outlook remains structurally positive due to consistent demand and global export opportunities.
India’s scientific talent pool, regulatory knowledge, cost efficiency and manufacturing scale makes the CDMO segment of the sector most attractive to invest in and this space is also a beneficiary of China+1 factor along with expiry of any patents in 2026, Agarwal said.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
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