Amid heightened market volatility triggered by escalating tensions in the Middle East and rising crude oil prices, domestic mutual funds have largely maintained their sectoral positioning, according to a latest report by JM Financial Institutional Securities.

In its India Strategy report titled “India MF Monthly Flow Tracker – Feb’26”, the brokerage said domestic mutual funds remained overweight on pharmaceuticals and healthcare, e-commerce, consumer durables, capital goods, and agrochemicals and petrochemicals relative to the BSE 200 benchmark in February.

Besides these sectors, mutual funds also increased exposure to segments such as building materials, media, sugar and diversified businesses, even though these categories do not currently have representation in the BSE 200 index.

On the other hand, domestic mutual funds remained underweight on private banks, oil & gas, metals & mining, consumer and IT services compared with the benchmark.

As per the report, the list of overweight and underweight sectors remained unchanged from January 2026, indicating that fund managers have broadly retained their sectoral allocations despite the recent bout of market volatility.

Meanwhile, cash holdings of Indian mutual funds stood at ₹2,09,800 crore, accounting for 4.7% of total equity AUM. In January, cash levels were slightly lower at ₹2,06,300 crore, though they also represented 4.7% of equity AUM.

Equity MF inflows dip 2% in Feb

Equity mutual fund inflows in India moderated for the second straight month in February, even as systematic investment plan (SIP) assets continued to grow and domestic fund managers maintained their sectoral preferences.

Equity mutual funds (excluding arbitrage funds) recorded net inflows of ₹37,600 crore ($4.1 billion) in February 2026, marking a 2% month-on-month decline, following a similar 2% fall in January.

Data from the Association of Mutual Funds in India showed that arbitrage funds saw inflows of ₹600 crore in February, compared with ₹3,300 crore in January. However, core equity funds attracted ₹26,000 crore, up 8% month-on-month, while flows into thematic funds rose to ₹3,000 crore from ₹1,000 crore in the previous month.

Equity new fund offers (NFOs) also picked up momentum, garnering ₹4,000 crore in February, compared with ₹800 crore in January.

SIP inflows decline, accounts continue to grow

SIP inflows moderated to ₹29,800 crore ($3.2 billion) in February, down from ₹31,000 crore ($3.4 billion) in January. Despite the decline, total SIP assets under management rose to ₹16,60,000 crore ($180 billion), up 1.7% month-on-month, even as markets declined 0.6% during the period.

The number of outstanding SIP accounts increased to 10.45 crore, adding 16 lakh accounts month-on-month.

However, new SIP registrations declined during the month. Gross SIP registrations fell by 8 lakh to 66 lakh in February, compared with 74 lakh in January. Meanwhile, 50 lakh SIP accounts were closed, taking the ratio of discontinued SIPs to 76% of new registrations.

The number of total contributing SIP accounts declined to 9.44 crore, compared with 9.92 crore in the previous month.