Equity exposure, which had been steadily rising from the lows of August 2024, climbed to multi-year highs for some large schemes.
BAFs are hybrid mutual funds that automatically allocate between equity and debt based on market conditions.
Net equity exposure for ICICI Prudential BAF — the second-largest scheme in the category with assets under management (AUM) of over ₹66,000 crore — stood at 61.9 per cent at the end of March, its highest level in nearly five years.
The largest BAF, managed by HDFC Mutual Fund, maintained its already-elevated equity exposure of 70 per cent in March, nearly unchanged from February 2026.
Net equity exposure for Kotak BAF and Tata BAF crossed the 60 per cent mark in March, the highest level for most of them in over a year.
While BAFs follow varied models to determine optimal asset allocation, equity exposure for most schemes is largely linked to market valuations.
Allocations typically decline when valuations rise and increase when valuations moderate.
Net exposure also reflects individual scheme positioning — some fund managers adopt a more conservative stance, while others take relatively aggressive allocation calls.
A few schemes, such as Edelweiss BAF, follow a different approach. The scheme adopts a pro-cyclical model — increasing equity exposure in rising markets and reducing it when markets weaken. In March, its net equity exposure stood at 45 per cent, a 12-month low.
Nippon India BAF was among the schemes that reduced net equity exposure during the month.
Experts have recently highlighted that equity market valuations are now broadly in line with long-term averages, with some segments even trading at a discount.
“Amid all the fear and gloom, the silver lining has been a decent moderation in valuations. Indian equities had been significantly underperforming emerging market peers for the past six quarters even before the current crisis. Sensex price-to-earnings (PE) multiple is now back to longer-term averages while our preferred valuation gauge that measures earnings yield as a relative spread to bond yields has moderated further. This comes as equity declines more than offset the sharp increase in bond yields,” SBI MF stated in its latest outlook.
ICICI Prudential MF’s equity valuation gauge also turned positive on equities in March for the first time in the last five years.
Indian equities corrected sharply in March 2026, with the Nifty and the Sensex falling 11.3 per cent and 11.5 per cent, respectively. By the end of the month, the Sensex was trading at a 12-month forward PE ratio of 17x, significantly below its five-year average of 20.2x. The Nifty Midcap 100, at a PE of 24.6x, was also below its five-year average of 26.6x.
The higher equity allocations are expected to support BAF returns, as markets have staged a strong rebound so far this month.