US mega-cap volatility hits Indian mutual funds’ overseas holdings

The turbulence in US equities, triggered by fears of reciprocal tariffs and concerns over inflated valuations of mega-cap stocks, has dealt a significant blow to Indian mutual funds’ overseas portfolios.

In February, several leading asset management companies saw the value of their foreign equity holdings decline sharply, with PPFAS Mutual Fund, SBI Mutual Fund, and ICICI Prudential Mutual Fund taking the biggest hits.

According to data from the Prime MF Database, the combined loss for these mutual funds amounted to nearly Rs 2,900 crore. PPFAS Mutual Fund recorded the most significant fall, with the value of its overseas portfolio dropping by Rs 957.51 crore — an 8 per cent decline from Rs 12,309 crore in January to Rs 11,351.80 crore in February.

Mega-cap stocks are shares of publicly traded companies with a market capitalisation exceeding $200 billion. These companies are typically industry leaders known for their stable and well-established business models.

SBI Mutual Fund followed close behind, witnessing a reduction of Rs 914.58 crore in its overseas holding value, marking a nearly 10 per cent fall to Rs 8,294 crore. ICICI Prudential Mutual Fund reported a loss of Rs 625.83 crore, reflecting a drop of 8.26 per cent.

Meanwhile, Franklin Templeton Mutual Fund and DSP Mutual Fund recorded losses of Rs 83.81 crore (down 12.21 per cent) and Rs 54.98 crore (down 6.94 per cent), respectively.

Financial experts attributed the hit to two primary factors: volatility in US equities and concerns over the overvaluation of mega-cap stocks. Vikas Gupta, CEO and Founder of Omniscience Capital, pointed out that uncertainties surrounding US President Trump’s proposed reciprocal tariffs have spooked markets.

"Tariffs could impact company margins and revenues due to potential counter-tariffs,” said Gupta. He also noted that inflation risks might limit the Federal Reserve’s ability to cut interest rates, affecting stock valuations.

Previously, the market had factored in the possibility of three to four Federal Reserve rate cuts in 2025, but current expectations are down to just one, creating uncertainty around stock valuations that were previously based on assumptions of lower rates and strong earnings growth.

Moreover, Gupta flagged the overvaluation of US mega-cap stocks such as Apple, Microsoft, Facebook, and Amazon. "These stocks were already trading at high valuations, and with doubts over earnings and discount rates, their attractiveness has significantly diminished," he said.

Despite the decline, Gupta advised against exiting the market entirely. Instead, he recommended adopting active investment strategies, as exchange-traded funds (ETFs) tend to be overweight on overvalued stocks. “Active selection is crucial in this volatile environment,” he emphasised.

While most mutual funds faced significant losses, Aditya Birla Sun Life Mutual Fund and Axis Mutual Fund managed to buck the trend with marginal gains.

Aditya Birla Sun Life recorded an increase of Rs 6.88 crore, taking its foreign equity holding value to Rs 525.95 crore, while Axis Mutual Fund saw a rise of Rs 4.68 crore to Rs 1,477.15 crore.

Among the major asset management companies, ICICI Prudential Mutual Fund made the most notable share sales, offloading 10.54 lakh shares of British American Tobacco PLC. SBI Mutual Fund sold 3 lakh shares each of Cognizant Technology Solutions and Alphabet Inc. Meanwhile, ICICI Prudential also trimmed its exposure to Newmont Mining Corp and EPAM Systems Inc.

Other key offloaded stocks included Alphabet Inc. (300,282 shares), Charles Schwab Corp. (6,872 shares), Salesforce.com (5,687 shares), Autodesk Inc. (4,629 shares), Amazon (2,544 shares), NVIDIA (486 shares), Apple (296 shares), and Intel (199 shares). Additionally, Oracle Corp. (17,000 shares), Emerson Electric (18,000 shares), and Newmont Mining Corp. (20,000 shares) saw reductions.

On the buying side, some funds took a more optimistic view by acquiring international stocks. Notable buys included 81,900 shares of Contemporary Amperex Technology and 46,653 shares of Microsoft Corp.

The evolving global market scenario has made it imperative for mutual funds to adopt selective and strategic approaches, navigating volatility with an eye on long-term growth potential.