Whats keeping largecap funds attractive and should you join the party?

Even though current high valuations and continuous FII exodus continues to cause panic on the Street, the investments in mutual funds and more precisely SIPs are having a joyous ride with month-on-month growth, marking the 44th consecutive month of net inflows into the segment in October.

Infact, the sharp correction from the peak hit in September has given a boost to mutual fund inflows during the last month. From the peak, Nifty is now down nearly 11 per cent from day's low, likely to further aid investments in the mutual fund space.

For October as in the words of  Himanshu Srivastava – Associate Director- Manager Research, Morningstar Investment Research India,"Investors showed interest across the board, however, a renewed interest can be seen in the categories having significant large cap exposure such as Large cap, Multicap, Large & Midcap and Flexicap. Given large caps feature well from the valuation perspective in the current market scenario as against mid and small caps, there could have been some rebalancing done towards large caps."

In October net inflow in the largecap fund category has doubled month-on-month while flows into the thematic funds remain on the top spot.

This points towards investors preference for investing across the market segment to diversify their portfolio and not to miss out on an attractive investment opportunity in any of the market segment, he added.

Substantial jump in net inflow in just 6 months in Largecap category of an exobirtant 9 times or 871 per cent

Hitesh Thakkar, Acting CEO, ITI Mutual Fund underscored that net Inflows in Large Cap category in April 2024 were over 350 Crs which have now become to over 3,400 Crs as on October 2024 which takes the AUM of the category to around 3.6 Lac Crores as on October 2024.

He added that during volatile times, investors usually tend towards relatively safer avenues to safeguard their investments. Large-cap companies generally exhibit limited downside due to their business nature and their ability to withstand market volatility. Consequently, large Cap funds have witnessed increasing allocations from investors in the last couple of months.  Morover the recent corrections have resulted in improving valuations for many large cap companies which makes them more attractive to taking exposure through the mutual fund route.
 

How should investors tread the current market dynamics?

Srivastava added that it has been observed that coming out meticulously investors are sticking on to their positions and not panicking during correction and rather utilizing it to build exposure. However, its important for investors to have the right and reasonable expectation and not get swayed away by the quantum of returns generated in the past.

Alekh Yadav, Head of Investment Products at Sanctum Wealth, meanwhile opined that relative to large caps and their own history mid and smallcaps are trading at significant premium to long term averages. Hence, most advisors, including us, are suggesting investors to overweight large caps within equities. While mid and smallcaps so far haven’t significant underperformed large caps, we expect large caps to do better going forward.