Mutual Funds Boost Capital Goods Exposure to 17-Month High in April 2026

Mutual funds have significantly ramped up their exposure to capital goods, reaching a 17-month high.  

The increased allocation reflects a strong confidence in India’s burgeoning manufacturing and infrastructure sectors, despite some concerns about valuation levels by fund managers. 

Key Details of Capital Goods Investment 

In April 2026, capital goods comprised 7.8% of mutual fund portfolios, positioning it as the third-largest sector exposure, following private banks and automobiles.  

This sector saw a notable uptick in fund allocations, with a 60 basis points increase month-on-month and a 90 basis points rise year-on-year. 

Rationale Behind Increased Allocation 

The surge in investments mirrors continued institutional interest in themes related to the capital expenditure cycle in India.  

Areas such as power transmission, defence manufacturing, electronics manufacturing services (EMS), logistics, and industrial infrastructure have drawn substantial investor attention. 

Valuation Concerns Among Fund Managers 

Despite the overall increase in investment, some fund managers express caution towards soaring valuations in certain segments of the capital goods sector.  

The elevated interest in this sector comes amidst ongoing concerns about the sustainability of current valuation multiples, following a period of rerating over the past few years. 

Read More: Mutual Funds Lower Tech Sector Exposure Over AI Disruption Concerns in April 2026!  

Impact of the Capex Cycle on the Sector 

The capital goods sector has experienced a shift from deep-value cyclical multiples to structural-growth-premium multiples over recent years.  

Notably, government capital expenditure has grown from 3.8% of GDP in FY20 to 6.1% in FY25, while infrastructure spending is projected to rise from ₹3.5 trillion in FY21 to ₹12.2 trillion in FY26. 

Current Valuation Metrics 

The capital goods sector is trading at approximately 41 times the one-year forward earnings, considerably above its historical 10-year average of 27.5 times.  

This increase is largely supported by solid order books, evident growth opportunities, and improved return ratios. 

Conclusion 

In summary, the significant rise in mutual funds' allocations to capital goods underscores a robust investor interest in the sector, driven by macroeconomic themes such as infrastructure and manufacturing growth. However, concerns about valuation levels remain, necessitating careful assessment of opportunities within the sector. 

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Disclaimer: This blog has been written exclusively for educational purposes. The securities or companies mentioned are only examples and not recommendations. This does not constitute a personal recommendation or investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions. 

Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.