It seems that mutual fund managers are going back to the basics, that is, invest in good large-cap companies with solid managements. Many new fund offers (NFOs) in recent months are focussed on large-cap stocks at reasonable valuations since the broader market stocks continue to trade at higher multiples.
Some of the schemes launched by the fund houses in recent months with a focus on large-caps include Bajaj Finserv Large Cap Fund, ITI Large & Mid Cap Fund, DSP Nifty Top 10 Equal Weight ETF, HDFC Nifty500 Multicap 50:25:25 index fund and Mirae Asset Nifty500 Multicap 50:25:25 ETF.
The index funds and exchange traded funds (ETFs) based on Nifty500 Multicap 50:25:25 have to invest 50% in large-cap stocks, and 25% each in mid-cap and small-caps. Groww, which is one of India’s largest stock broker and mutual fund distribution platform, said there was a 200 basis points increase in the share of inflows into large-cap funds compared to the small-cap and mid-caps on its platform.
Not surprisingly, the overall inflows in large-cap funds jumped four-fold in August to Rs 2,636.86 crore. Even the large and mid-cap category saw around 25% increase in inflows at Rs 3,293.74 crore.
“We are interestingly seeing investors balancing their asset allocation in favour of large-cap, multi cap and flexi-cap funds. Give the run up in mid- and small-cap space, managing risk is paramount today and from that perspective this is a good development,” said Akhil Chaturvedi, executive director and chief business officer at Motilal Oswal AMC.
So far in 2024, while the BSE Sensex has risen nearly 13%, the BSE Smallcap and the BSE Midcap indices have jumped 31% each. The trend has been similar in the last few years if one looks at 5-year returns. “… there has been a re-emergence of net inflows in the large-cap category. With large-cap segment faring relatively better from valuation point of view, investors would have focused their attention towards this category,” said Himanshu Srivastava, associate director – manager research, Morningstar Investment Research India.
However, the inflows in large-cap funds have not come at the expense of mid-cap and small-cap category. The small-cap and mid-cap funds garnered higher inflows than large-caps in August at Rs 3,209.33 crore and Rs 3,054.68 crore, respectively. Deepak Ramaraju, senior fund manager at Shriram AMC said the partial shift of inflows from multi-cap funds to large-caps can be temporary due to valuation differences.