Technology sector funds dominate July returns; 9 mutual funds deliver over 10% gains. Should investors ride the rally?

Technology sector mutual funds dominated the July return chart, with the top nine funds delivering over 10% returns during the month, an analysis by ETMutualFunds showed. There were nearly 610 funds in the said time period and top 10 funds were from the tech sector.

HDFC Technology Fund, the topper in the list, delivered a return of 16.91% in the month of July. Aditya Birla SL Digital India Fund and Kotak Technology Fund delivered 15.08% and 13.84% returns respectively.

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Three other funds based on the tech sector delivered nearly 13% return which included ICICI Pru Technology Fund, SBI Technology Opp Fund and Tata Digital India Fund gave 13.83%, 13.73% and 13.30% respectively in July 2026.

The other three tech funds to deliver double-digit returns were Motilal Oswal Digital India Fund, WOC Digital Bharat Fund and Franklin India Technology Fund which gave 10.93%, 10.59% and 10.05% respectively in the said time period.

The next tech fund in the list was Invesco India Technology Fund which gave 9.91% return in July.

Tech funds: what fuelled the rally and can they sustain momentum?

Jasmeet Singh, Executive Director, Anand Rathi Wealth Limited shared with ETMutualFunds that after correcting nearly 35% between February and June, the Nifty IT index rallied about 19% in July which is largely driven by valuation comfort and improving business fundamentals.
“Strong Q1 FY27 earnings also reinforced confidence, with 8 out of the 10 Nifty IT companies reporting results so far delivering around 14.3% year on year EPS growth, giving investors confidence that traditional IT services continue to remain relevant despite the rise of AI and can expect global investors to rotate their investments from expensive AI hardware companies towards India’s asset light IT services businesses, which appeared relatively better valued.”
Singh further said that whether this outperformance continues over the next 12 to 18 months is difficult to predict because technology remains a cyclical sector and identifying tops and bottoms consistently is rarely possible. The long term outlook of the IT sector remains positive however the near term performance will depend on earnings delivery and global demand. So rather than taking concentrated sectoral exposure after a sharp rally, investors can invest in diversified equity funds that already have meaningful exposure to quality IT companies, offering participation in the sector with lower portfolio risk.

How others performed in July

ICICI Pru Strategic Metal and Energy Equity FoF delivered 9.64% return in July, followed by Mirae Asset Hang Seng TECH ETF FoF which gave 8.34% return in the same period. Bajaj Finserv Healthcare Fund gave 5.34% in July.

Aditya Birla SL Pharma & Healthcare Fund and HDFC Innovation Fund gave 4.61% each in July. HSBC Consumption Fund and HSBC Brazil Fund gave 3.83% and 3.80% respectively in the same period.

SBI Automotive Opportunities Fund delivered a return of 3.34% in July, followed by Samco Small Cap Fund and UTI Innovation Fund who gave 3.30% return each in July.

SBI Contra Fund, the oldest and largest contra fund, delivered 1.54% in July, followed by Tata Large Cap Fund who gave 1.53%. Parag Parikh Large Cap Fund gave 1.13% in July. Abakkus Small Cap Fund gave 1.03% in the same period.

Parag Parikh Flexi Cap Fund, the largest active fund and flexi cap fund based on assets managed, delivered 0.74% return in July

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Negative performers

Around 158 funds gave negative returns in July with eight funds delivering double-digit negative returns. These double-digit negative returns were delivered by international funds. Out of 158 funds, the first 23 funds were international funds.

Nippon India Taiwan Equity Fund lost the most at around 25.30% in July. Invesco India – Invesco Global Consumer Trends FoF and PGIM India Emerging Markets Equity FoF lost 19.39% and 17.67% in the same period. Kotak Global Emerging Market Overseas Equity Omni FOF lost 10.90%.

International funds: correction or broader shift in global market

Singh said the recent decline in international mutual funds during July was largely driven by the correction in global technology and AI related stocks and after a strong rally, the Nasdaq corrected around 10%, Taiwan’s index declined about 18% in July, while Japan’s Nikkei and South Korea’s Kospi fell more than 15% and 65% respectively from their recent highs.

“At this stage, the recent weakness does not indicate a structural shift in global markets, but rather reflects investors reassessing valuations after a sharp run up. In fact, such phases often lead global investors to rotate towards relatively better valued opportunities, and India’s asset light IT services sector could be one of the beneficiaries.”

Global markets have been volatile for the past few months due to geopolitical uncertainties, tariff concerns and trade tensions. Investors should focus on domestic diversified equity funds which continue to offer a better risk adjusted opportunity, backed by stronger earnings visibility and a more favourable long term growth, Singh further said.

Mahindra Manulife Manufacturing Fund lost 0.02% in July, followed by HSBC Multi Cap Fund, ICICI Prudential Smallcap Fund, Nippon India Multi Cap Fund, and Motilal Oswal Financial Services Fund who lost 0.01% each in the same period.

Going ahead, what strategy to follow?

Singh said investors should avoid chasing sectors based on recent performance because sector leadership changes over time and timing these cycles consistently is extremely difficult and they can choose actively managed diversified equity funds such as Flexi Cap or Multi Cap funds, which provide exposure across sectors, market capitalisations and investment opportunities as this not only reduces concentration risk but also improves the potential for better risk adjusted returns over the long term.

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For long term wealth creation, investors can consider allocating around 80% of their portfolio to equities, with an ideal market capitalisation mix of 50 to 55% in large caps, 20 to 25% in mid caps and the balance in small caps, Singh further 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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