India's mutual funds are moving money back to large cap stocks
The outperformance of mid-caps and small-caps compared to large-caps has narrowed over the last few months, leading mutual fund managers to increasingly shift focus toward large caps.
The shift is evident from the nearly four-fold increase in inflows into largecap funds in August, rising to ₹2,636 crore from ₹670 crore in July, as per data from the Association of the Mutual Funds in India (AMFI).
In contrast, investments in midcap funds grew by around 86%, while small-cap funds saw a slowdown, with inflows dipping by over 20% compared to July.
Lower redemptions and new fund offers have also aided inflows into large-cap funds.
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Fund managers have often noted that large-cap funds are regarded as a reliable option during periods of market volatility, offering a level of security and trustworthiness that mid-cap and small-cap stocks typically lack.
“If we have economic headwinds and the interest rate cuts are happening in that scenario, then one could argue, at least from a portfolio positioning or stock positioning perspective that probably large caps would be a better place to look at, rather than mid caps and small caps,” said Karthik Kumar, Fund Manager at Axis MF, which manages $35 billion in assets.
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Krishna Sanghavi, CIO of Mahindra Manulife Investment Management and Manish Mehta, Head of Sales, Digital & Marketing at Kotak Mahindra Asset Management, agree with Kumar.
Sanghavi believes that with the economy doing well and valuations at comfortable levels, it makes more sense to consider investing in large-cap stocks.
Mehta also advises clients to consider investing in large-caps as they are better positioned from the valuation point of view.
Mehta recommends looking at large-cap funds, or flexi-cap/multi-cap funds, with a bias towards large-caps.
Mohit Gang, CEO of Moneyfront, however, says it would be wise to wait before confirming the shift towards large-cap funds as a long-term trend.
While large-cap inflows surged to ₹2,700 crore in August, he pointed out that mid- and small-cap funds still have better flows in absolute terms, at over ₹3,000 crore each.
Gang also noted that a significant portion of the large-cap inflows was driven by a major new fund offer (NFO), which raised ₹850-860 crore in August.
While there is increasing talk about large-cap valuations being more reasonable compared to the highly valued mid- and small-cap segments, he believes it’s prudent to wait and watch.
“Perhaps there is some shift happening. But I will wait for another two to three months to watch this data out, to finally frame an opinion. If that shift is happening, it is good for the industry and the investors both,” he said.
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