Mutual funds have raised their exposure to public sector banks (PSBs), with the sector’s allocation rising to a 17-month high of 3.3 per cent in September 2025, according to a report by Motilal Oswal Financial Services. This marks a 30-basis-point increase month-on-month from 3 per cent in July and August and a 70-basis-point jump year-on-year from 2.6 per cent in September 2024.
The report noted that the last time the sector weight touched 3.3 per cent was in May 2024. In the BSE 200 index, PSU banks’ allocation stood slightly higher at 3.5 per cent.
Several leading fund houses including Aditya Birla Sun Life, Bandhan, DSP, HDFC, Kotak, Nippon India, SBI, Sundaram, and UTI Mutual Funds — held an allocation of over 3 per cent during the month. State Bank of India (SBI) featured among the top five stocks that saw the highest rise in value, with around 15 funds adding to their holdings while five reduced exposure.
Invesco Mutual Fund bought about 99.18 lakh shares of Bank of Baroda, while Quant Mutual Fund added 2.28 crore shares of Canara Bank during September. However, Indian Bank was among the bottom 30 stocks by change in mutual fund shareholding, with holdings declining 1.7 per cent month-on-month to 142.7 lakh shares.
Meanwhile, private banks’ sectoral weight fell for the third straight month to an eight-month low of 17.3 per cent in September, down 20 basis points month-on-month. Despite this, the weight was still 120 basis points higher year-on-year.
Apart from PSU banks, mutual funds also increased exposure to non-banking financial companies (NBFCs), metals, automobiles, capital goods, oil and gas, utilities, and real estate sectors during the month. The NBFC weight climbed to a 17-month high of 5.8 per cent.
The report also pointed out the growing investor interest in PSU-focused passive funds. Around eight such schemes have been in the market for about six months. The SBI BSE PSU Bank ETF led the pack with a return of 24.19 per cent, followed by DSP Nifty PSU Bank ETF (23.71 per cent), Mirae Asset Nifty PSU Bank ETF (23.69 per cent), and Nippon India ETF Nifty PSU Bank BeES (23.48 per cent). The SBI BSE PSU Bank Index Fund posted the lowest six-month return at 23.44 per cent.