If you are looking to invest in sectoral mutual funds, it is important to check market sentiment and the factors driving it.
According to the latest quarterly note, Quarter of Divergence: Resilient India, Restless World, by Prateek Nigudkar, Senior Fund Manager at Shriram AMC, the first half of FY27 has seen a sharp divergence between large-caps and the broader market. The Nifty 50 gave up most of its first-quarter gains, falling about 6% in September alone.
The Nifty 50 rose just 1.3% in H1FY27, while the Nifty Smallcap 250 gained 24.6%. Nigudkar attributes much of this performance gap to contrasting investment flows, noting that large-caps now offer better valuations relative to their historical averages.
For mutual fund investors, however, sectoral opportunities need to be assessed against the relevant sector benchmarks, valuations, and underlying business prospects.
Which sectoral mutual funds offer opportunities for mutual fund investors?
Here is what investors can look at, along with benchmarks they can use to compare sector-focused schemes.
Financial services: Positive
Nigudkar is positive on banks and the life insurance segment, citing attractive valuations following the market correction. Several high-quality private banks are trading near or below their long-term average valuation multiples despite steady credit growth, stable asset quality and a strong economy.
On life insurance, he flags regulatory uncertainty around the Insurance Regulatory and Development Authority of India's (IRDAI) proposed rules on expenses of management (EoM) and distribution. However, Nigudkar expects the final regulations to be more measured, with longer implementation timelines and product-level flexibility.
This means investors can compare relevant schemes with the Nifty Bank and Nifty Financial Services indices, while recognising that these benchmarks have different sector compositions.
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