Morningstar 2026 Outlook: Mutual Funds Tilt Towards Large Caps, Short-Duration Debt

• Indian mutual funds are entering 2026 with a preference for large-cap equities and short-duration debt strategies, reflecting a cautious approach amid global uncertainty.
• Equity funds favor stability, with higher allocation to large caps as portfolio anchors after a volatile 2025; mid- and small-cap exposure remains selective due to valuation concerns.
• Sector allocations show a domestic growth bias, with overweights in consumer cyclicals and healthcare, while technology is tactically underweight.
• Fixed-income funds have reduced portfolio duration, emphasizing accrual (carry) over capital gains from falling yields, and increased corporate bond exposure.
• Asset managers prioritize stable income generation, portfolio flexibility, and risk management, favoring high-quality papers and AAA-rated securities.