At a time when global markets are being rattled by tariff threats, particularly from the United States, Indian mutual funds have shown a surprising trend—raising exposure to Chinese companies. This move appears counterintuitive as geopolitical tensions between the US and China have caused volatility, but Indian fund managers saw an opportunity in March 2025 to tap into undervalued Chinese equities.

Data from Primemfdatabase.com revealed that Chinese firms dominated overseas mutual fund buying. Topping the charts was SenseTime Group Inc., a prominent AI software developer, where mutual funds purchased over 5.44 lakh shares.

This aggressive buying came even as Donald Trump's tariff threats loomed large on China, and by extension, on any country trading with Chinese firms. Despite this, Indian mutual funds perceived the valuation of certain Chinese stocks to be attractive.

Top Picks by Indian Mutual Funds

The largest purchases by mutual funds in March 2025 included:

• SenseTime Group Inc. – 5.44 lakh shares

• Industrial & Commercial Bank of China (ICBC) – 4.60 lakh shares

• China Construction Bank Corp. – 3.01 lakh shares

• Bank of China – 2.33 lakh shares

These companies represent a mix of artificial intelligence, banking, and infrastructure sectors, showcasing a diversified international investment strategy.

Market Performance in March: India vs Global Indices

Interestingly, while the Indian markets outperformed global peers, Indian fund managers didn't shy away from overseas exposure. In March:

• Nifty and Sensex gained around 8% each

• Dow Jones fell by around 5%, while the S&P 500 dropped by nearly 6%

• China’s CSI 300 was nearly flat, with a 0.8% gain

• Hang Seng Index rose by 2.1%

This performance divergence gave mutual funds the perfect opportunity to rebalance their portfolios. While the Indian markets soared, global equities were relatively weak, making them an attractive bet for those eyeing value buys in stable sectors like banking and technology.

Foreign Equity Buying Led by Select Fund Houses

Among the standout performers in overseas equity buying were:

• Nippon Life India Mutual Fund

• Mirae Asset Management (India)

These two fund houses led the charge even as a majority of fund houses turned net sellers in the overseas equity segment. Presently, about 13 fund houses in India hold exposure to foreign equities.

Shift in Global Tech Preferences

Another interesting trend seen in the mutual fund portfolio was the mixed approach toward global technology stocks. Indian mutual funds:

• Reduced holdings in Apple and Microsoft

• Increased exposure to Amazon, Facebook (Meta), and Nvidia

This suggests a tactical reallocation within the tech sector, possibly due to valuation concerns or regional performance expectations.

Exit from Other Global Holdings

While Chinese stocks saw inflows, Indian mutual funds trimmed their stakes in:

• Cognizant Technology Solutions Corp.

• Ayala Land Inc.

• WuXi Biologics (Cayman) Inc.

• Kenvue Inc.

• British American Tobacco PLC Holdings

These sales may reflect profit-booking strategies, sectoral rotation, or a response to regulatory risks and performance concerns in those geographies or industries.

Indian Markets Remain Resilient

The backdrop of this entire overseas play was a robust performance by Indian markets in March. With both Sensex and Nifty delivering strong 8% gains, mutual funds took a balanced approach by diversifying internationally, likely to hedge against any domestic or geopolitical shocks.

Broader Implications for Investors

This trend signals renewed confidence in emerging market players like China and an acknowledgment of the opportunities that arise during volatility. Indian mutual funds have shown that despite geopolitical instability, there are avenues to create value for investors by leveraging international exposure.

It also raises a crucial question: Are Indian fund houses better positioned than global peers to identify long-term value amidst short-term uncertainty?

Looking Ahead

As the world keeps a close watch on the escalating US-China trade tensions, Indian mutual funds will likely continue fine-tuning their international strategies. More fund houses could follow the lead of Nippon and Mirae if these investments yield better returns.

The long-term performance of stocks like SenseTime, ICBC, and Bank of China will be critical in validating this aggressive global play.

The Upcoming IPOs in this week and coming weeks are Ather Energy.

The Current active IPO are Tankup Engineers.

Start your Stock Market Journey and Apply in IPO by Opening Free Demat Account in Choice Broking FinX.

Join our Trading with CA Abhay Telegram Channel for regular Stock Market Trading and Investment Calls by CA Abhay Varn - SEBI Registered Research Analyst.