MFs raise healthcare bets for 4th straight month to 71-month high. Should investors follow?

Mutual funds are increasing their exposure to the healthcare sector, with healthcare allocation rising for the fourth consecutive month in August 2026 to 8.4%, its highest level in 71 months. The allocation increased by 30 basis points month-on-month and 80 basis points year-on-year, according to a report by Motilal Oswal Financial Services.

The report showed that healthcare allocation stood at around 8.1% in July 2026 and 7.6% in August 2025. In April 2026, the allocation was 7.5% and has risen every month since then.

The continued rise in allocation raises questions about what is driving fund managers towards the sector and whether investors should also consider increasing their exposure to healthcare.


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Aparna Shanker, CIO–Equity, The Wealth Company Mutual Fund, told ETMutualFunds that the rise in allocation reflects a combination of structural improvements in the healthcare sector and its defensive characteristics.

“Indian healthcare is moving beyond traditional domestic pharma,” she said, pointing to opportunities emerging from innovation, complex therapies, contract development and manufacturing, and global outsourcing.

She said the sector is gaining greater revenue visibility through longer-term contracts, improving capabilities across the value chain and increasing formalisation. More healthcare businesses accessing public markets also indicate greater depth and maturity in the sector.

Shivam Pathak, CFP and Founder of Asset Elixir, told ETMutualFunds that the rise in healthcare allocation reflects a combination of earnings visibility, resilient demand and improving growth prospects.

Pathak further said fund managers are finding opportunities across hospitals, pharmaceuticals and other healthcare-related businesses, making the sector more attractive within the overall portfolio.

The report showed that in August 2026, mutual funds increased their allocation to Insurance, Healthcare, Capital Goods, Metals, E-Commerce, NBFC - Non Lending, PSU Banks, Retail and Real Estate, leading to a month-on-month rise in their weights.

The Nifty Healthcare Index - TRI gained nearly 6.27% in the last three months and 13.27% in the last six months. The index rallied 12.38% in the last one year and 19.79% in the last three years.

Defensive positioning or growth opportunity?

Experts said the increase in healthcare allocation does not necessarily indicate that fund managers are taking only a defensive stance.

Pathak said it is a combination of both, as healthcare has a relatively defensive demand profile, but the current interest is also driven by long-term growth opportunities, particularly in hospitals, specialty pharma and healthcare manufacturing.

Shanker also believes the move is not simply a defensive call. According to her, the increasing allocation reflects greater confidence in the sector's ability to deliver sustainable growth while providing resilience across economic cycles.

She highlighted India's growing role in global healthcare outsourcing, innovation and capabilities across the healthcare value chain as factors supporting the sector's long-term growth potential.

According to the report by Motilal Oswal Financial Services, the top sectors where mutual fund ownership was at least 1% higher than their allocation in the BSE 200 were NBFC–Non-Lending (16 funds over-owned), Healthcare (14 funds over-owned), E-Commerce (10 funds over-owned), Capital Goods (9 funds over-owned) and Chemicals (8 funds over-owned).

The BSE 200 had a total allocation of 6% to the healthcare sector, compared with 8.4% for mutual funds, the report showed.

Some fund houses such as Aditya Birla Sun Life Mutual Fund, Axis Mutual Fund, Bandhan Mutual Fund, Canara Robeco Mutual Fund, DSP Mutual Fund, Edelweiss Mutual Fund, Franklin Templeton Mutual Fund, HDFC Mutual Fund, HSBC Mutual Fund, ICICI Prudential Mutual Fund, Invesco Mutual Fund, Kotak Mutual Fund, Mirae Asset Mutual Fund, Nippon India Mutual Fund, Quant Mutual Fund, SBI Mutual Fund, Sundaram Mutual Fund, Tata Mutual Fund and UTI Mutual Fund had higher allocations to healthcare compared with the BSE 200.

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Does the sector look attractive now and which segments?

With several mutual funds having higher allocations to the healthcare sector compared with the BSE 200, investors are wondering whether valuations are attractive and which segments or themes they should consider at current valuations.

The experts said that despite the increase in allocation, investors may need to be selective rather than chase the recent rally.

Shanker said valuations across the healthcare sector are not uniform. While some pockets have become demanding following their re-rating, opportunities remain where earnings growth can justify current valuations.

She prefers businesses that are gaining share in global healthcare outsourcing, companies with differentiated complex products and therapies, and those with long-term contracts. CDMO, specialty pharma, hospitals and select healthcare services are among the areas she finds interesting.

Pathak also cautioned that healthcare valuations are not uniformly cheap and investors should avoid chasing the rally. He sees hospitals, domestic formulations, specialty pharma and pharma contract manufacturing as interesting areas.

The highest month-on-month net buying in August 2026 was seen in Dr Reddy's Labs (+11.4%), Coal India (+9.9%), Tata Steel (+4.3%) and Max Healthcare (+4.2%).

There were nearly 27 healthcare sector funds, including active and passive funds, that had completed three months of operations. Bajaj Finserv Healthcare Fund gave the highest return of around 14.47%, while ICICI Prudential Healthcare Fund gave the lowest return of around 3.71%.

In the last one year, healthcare sector funds gave an average return of around 15.68%, with nearly 25 funds in the category. Of these, Kotak Healthcare Fund gave the highest return of 26.06%, while ICICI Prudential Healthcare Fund gave the lowest return of around 5.48%.

Should investors increase healthcare exposure?

The rise in mutual fund allocation to healthcare may make the sector worth tracking, but investors should not increase their exposure solely because fund managers have raised their allocation, the experts said.

Pathak said healthcare can be considered a satellite allocation within an equity portfolio rather than a core allocation. He suggested that around 5-10% of an equity portfolio could be considered for healthcare, preferably through staggered investments instead of a large lump-sum investment after a strong performance.

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Shanker similarly advised investors to maintain a diversified equity allocation rather than make a large tactical allocation based solely on recent performance.

She remains constructive on the long-term outlook for healthcare, supported by global supply-chain opportunities, outsourcing, innovation, improving capabilities and greater formalisation. At the same time, she believes investors should focus on the quality and sustainability of earnings and return on capital rather than chase past performance.

(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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