AI theme drives global allocation: Axis Mutual Fund raises overseas exposure to 9% despite valuation concerns

Axis Mutual Fund has increased the overseas allocation in its Axis Large & Mid Cap Fund to 9%, citing opportunities emerging from the artificial intelligence (AI) theme and relatively attractive global markets. The fund house, however, said it remains cautious about elevated valuations in certain international markets, particularly those linked to AI.

The move comes at a time when AI-led technology stocks continue to dominate investor interest globally, while domestic equities have seen valuation concerns in several pockets despite a recent market correction.

Overseas allocation

In its latest fund focus note, Axis Mutual Fund said it has strategically increased exposure to international equities to capitalise on emerging opportunities. The fund's overseas allocation currently stands at 9%, supported by favourable tailwinds in the AI space. At the same time, it said it would remain watchful of valuations before increasing exposure further.

The fund house also believes global markets currently offer a better balance of valuation and growth than domestic markets from a relative perspective. According to the note, this provides a compelling case for diversified geographic allocation to enhance long-term returns.

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Global stock selection

Axis said its overseas investments are made based on advice from Schroders Investment Management and follow a high-conviction alpha strategy. The fund looks for companies whose current share prices do not fully reflect their long-term growth prospects, businesses expected to deliver earnings growth above market consensus over the next three to five years, and firms that meet material environmental, social and governance (ESG) standards.

The global allocation complements the fund's domestic portfolio, which also follows a quality-focused, bottom-up investment approach aimed at generating sustainable long-term returns.

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Axis Large & Mid Cap Fund: Key portfolio changes

Parameter	Details
Current overseas allocation	9%
Reason for increasing global exposure	AI-led investment opportunities and relatively attractive global valuations
Global investment partner	Schroders Investment Management
Global investment approach	High-conviction strategy focusing on companies with strong long-term earnings potential
Domestic sectors with increased allocation	Electrical Equipment (+3.6%), Auto Components (+2.5%), Industrial Products (+1.3%)
Domestic sectors with reduced allocation	Banks (-3.3%), Power (-1.5%), Pharmaceuticals & Biotechnology (-1.4%)
Portfolio concentration	Number of holdings reduced from 96 (Dec 2025) to 86 (May 2026)
Domestic investment themes	Manufacturing, export-oriented businesses, EVs, power infrastructure, healthcare services
Overall investment style	Bottom-up stock selection with focus on quality businesses
Valuation stance	Positive on global opportunities but cautious on elevated valuations in both domestic and overseas markets

Domestic portfolio

Alongside the increase in overseas exposure, Axis has reshaped its domestic portfolio following recent market volatility. The fund has raised exposure to sectors such as electrical equipment, auto components and industrial products, citing themes including electric vehicle adoption, power infrastructure spending and supply-chain diversification.

At the same time, it has reduced exposure to select mid-cap banks and pharmaceutical companies while increasing allocations to higher-conviction ideas. The portfolio has also become more concentrated, with the number of holdings falling from 96 in December 2025 to 86 by the end of May 2026.

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Large-cap tilt remains

Despite adding to overseas equities and increasing exposure to select mid- and small-cap opportunities, the fund continues to maintain a large-cap bias because of valuation comfort. Axis said the portfolio remains focused on bottom-up stock selection, investing in market leaders and businesses with superior earnings potential.

Looking ahead, the fund plans to continue focusing on domestic manufacturing, export-oriented businesses and healthcare services while remaining vigilant on valuations across both domestic and overseas markets.

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