Foreign Affairs: Overseas stocks that Indian mutual funds are embracing and rejecting

At a time when most overseas-focussed Indian mutual funds remain closed to fresh investments, many schemes were actively reshuffling portfolios — with fresh buys and complete exits.

Overseas markets have been the top choice for Indian fund managers looking to diversify their holdings.

At present, 29 of the 70 international schemes are open for fresh investments. Almost all of these allow SIP subscriptions. However, if investors want to continue their SIPs and also make fresh lump-sum investments at the same time, most international mutual funds are not facilitating such transactions, unless they still have unused headroom.

Indian fund managers invest in overseas stocks primarily to diversify portfolios beyond domestic opportunities, access global industry leaders, and tap into innovation-driven themes such as artificial intelligence (AI) and electric vehicles (EVs), that are relatively less developed in India.

Fresh bets

Data available with PrimeMF database, a mutual fund research platform, showed that Nippon India Japan Equity Fund was busy adding fresh Japanese stocks to the scheme in June.

The top foreign stocks that the fund added in June were Terumo Corp, Mitsubishi Corp, Mitsubishi Heavy Industries, Otsuka Corp, and Bridgestone Corp.

In total, these stocks comprised 16 percent of the fund, which had assets under management (AUM) of Rs 272 crore as of June 30, 2025.

Foreign stocks picked up by other mutual fund schemes last month included Bawag Group AG, Prudential PLC, ZTO Express (Cayman) Inc, Thomson Reuters Corp, and Ferrovial SE.

In addition to overseas stocks, many domestic-focussed mutual funds also venture abroad, selectively picking international stocks as part of their strategy.

Among these, the Axis Innovation Fund added Japan-listed Sony Group Corp to the scheme, while Franklin Asian Equity Fund invested in Taiwan’s Yageo Corp.

Also read: The rise of SIFs: A new frontier for Indian investors

Complete exits

While the Nippon India Japan Equity Fund saw action on the buying side, there was a lot of activity on the sell side as well, as the scheme completely offloaded shares of Mitsui & Co, Nidec Corp, Denso Corp, Asahi Group Holdings, and Daikin Industries in June.

The top stocks that other overseas funds entirely exited were Rheinmetall AG, British American Tobacco Plc, Singapore Exchange, Imperial Brands, CIE Financiere Richemont SA, and China Literature.

There were some domestic-focussed equity funds as well that exited foreign stocks.

ICICI Prudential Value Fund sold shares of Britain’s Vodafone Group worth Rs 387.7 crore in June. Further, Franklin India Dividend Yield Fund completely exited Taiwan’s Novatek Microelectronics Corp, and Axis Innovation Fund fully offloaded shares of Britain’s Nvent Electric Plc.

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Alternative to overseas funds

In February, the Securities and Exchange Board of India (SEBI) had asked mutual funds investing in overseas securities to stop further investments in foreign stocks to avoid breach of industry-wide limits imposed by the Reserve Bank of India.

At an industry level, mutual funds can invest a maximum of $7 billion in overseas securities and funds, and $1 billion in foreign exchange-traded funds (ETFs).

The Association of Mutual Funds in India (AMFI) had notified in June that mutual fund schemes may resume subscriptions and invest in overseas funds or securities up to the headroom available, without breaching investment limits.

There are domestic equity-oriented schemes that have a mandate of having at least 65 percent exposure to Indian equities, but can also choose to allocate a portion of their portfolios to overseas stocks.

Data shows that as a percentage of net assets, Edelweiss Technology Fund had the highest allocation to foreign securities (29.4 percent as of June end). It was followed by DSP Value Fund with 17.9 percent, and Axis Innovation Fund with 15.6 percent exposure to foreign funds.

By way of market value, Parag Parikh Flexi Cap Fund had the highest overseas allocation at Rs 12,305.6 crore, followed by SBI Focused Fund at Rs 3,774.4 crore, SBI Contra Fund at Rs 1,219.2 crore, and Axis Large & Mid Cap Fund at Rs 801.9 crore.