ICICI Bank has overtaken HDFC Bank as the largest equity holding by value for Indian mutual funds in July 2026. This shift reflects a strategic portfolio rotation as fund managers increase exposure to mid- and small-cap stocks while navigating headwinds at HDFC Bank, including governance and margin concerns.
In a significant shift for the Indian equity market, ICICI Bank has surpassed HDFC Bank to become the largest stock holding by value within Indian mutual fund portfolios as of July 2026. This transition marks a notable change in the preferences of fund managers, who have been actively rebalancing their holdings amid evolving market conditions.
The shift in leadership was largely driven by a divergence in the performance of the two banking giants. During July, ICICI Bank’s stock price gained 7%, supported by a strong set of first-quarter earnings. Conversely, HDFC Bank experienced a 6.3% decline in its share price over the same period. By the end of July, the total value of mutual fund investments in ICICI Bank reached ₹2.90 lakh crore, while the value of their holdings in HDFC Bank fell to ₹2.86 lakh crore.
HDFC Bank has faced several challenges throughout 2026 that have impacted investor sentiment. The stock has seen a decline of approximately 24% year-to-date through July. Market participants have expressed concerns regarding the bank's post-merger integration process, profitability margins, and broader questions about leadership succession. These issues have created a period of uncertainty for the bank, causing some mutual funds to reduce their exposure to the stock.
Beyond the change in the top holding, mutual funds have also been reallocating capital toward mid- and small-cap equities, signaling a search for growth opportunities outside the largest companies. Buying activity in this segment was widespread, with fund managers increasing their stakes in companies such as Rail Vikas Nigam, Biocon, and IDBI Bank. This trend indicates that fund managers are finding more attractive growth prospects in smaller, potentially faster-growing businesses.
Sectoral allocation data also shows this shift in strategy. While the overall weight of private sector banks in mutual fund portfolios decreased slightly, the technology and automobile sectors saw increased interest. The technology sector’s weightage rose to 6.6% in July from 5.9% in June, while automobile exposure climbed to 8.9%.
Looking ahead, investors will be monitoring whether this rotation into mid- and small-cap stocks continues as a long-term trend or if it is a temporary tactical move. For the banking sector, the ability of HDFC Bank to address concerns regarding leadership stability and operating margins will be an important factor for market sentiment in the coming months.