Smallcap vs largecap mutual funds: Where to invest?

Synopsis

Analysts predict that largecap mutual funds will outperform in 2024, reversing the trend of smallcaps overshadowing largecaps in 2023. Indian Large Caps offer growth potential and attractive valuations, with soaring RoE, robust PAT, and impressive Sales figures. Motilal Oswal Mutual Fund has launched the NFO of Motilal Oswal Large Cap Fund, open for subscription till January 31. Largecaps historically have lower drawdowns and faster recovery compared to small and midcap stocks. With improving macro strength and expected inflows from FIIs, now is an opportune moment to invest in largecap stocks, according to experts.

Smallcap vs largecap mutual funds: Where to invest?iStock

After smallcaps overshadowed largecaps in 2023, analysts are betting that the tables would turn in 2024 leading to the outperformance of largecap mutual funds in the new year.

“Indian Large Caps often mirror mid and small caps in the Global context, presenting a growth canvas for savvy investors. Today, Indian Large Caps boast the apex of quality with soaring RoE, robust PAT, and impressive Sales figures. Furthermore, their valuations stand at a modest with trailing PE at 21.9, unveiling an ideal blend of quality and growth potential,” said Atul Mehra of Motilal Oswal Mutual Fund.

The AMC has recently launched NFO of Motilal Oswal Large Cap Fund, which is open for subscription till January 31.

When seen against small and midcap stocks, largecaps have historically had lowering drawdowns and have recovered faster. While Nifty 100 companies have gained share in overall Revenue and PAT of listed universe, the overall share in market cap has fallen from 72.3% in 2018 to 64% currently.

Given the improving macro strength of India, FIIs are also expected to bring in more flows. Historically, a significant portion of FII allocation gravitates towards largecaps. With India’s weight in EM indices at an all-time high, passive /active flows into EM funds could in turn drive significant foreign buying, Motilal said. Mutual funds have also seen outflows in largecaps, which may be about to change.

“Considering the currently attractive valuations in the Large-cap segment, we believe it’s an opportune moment to step into the large-cap space to capitalise on the potential upside,” said Navin Agarwal, MD and CEO of Motilal Oswal AMC.

Largecaps have consistently performed over the years by being in the top 2 quartiles for 9 out of 11 years.

Based on a unique “ACE” construct, Motilal Oswal Large Cap Fund aims to maintain a strategically balanced portfolio with exposure of a minimum of 80% in the Nifty 100 large-cap stocks, complemented by a thoughtful 20% allocation in small-cap/Mid/IPO/Pre-IPO/foreign equity.

The Motilal Oswal Large Cap Fund is available in regular and direct plan and a minimum application amount is Rs 500 and in multiples of Rs 1, thereafter. The minimum redemption amount is Rs 500 and in multiples of Re 1, thereafter or the account balance, whichever is lower.

Strategically designed to provide investors with a unique opportunity to tap into the potential of the largecap segment, the scheme is benchmarked against NSE 100 TRI. The returns by this index is at 17.4% CAGR in 21 years.

Motilal Oswal Large Cap Fund aims to have a significant active share similar to index at 60%-80% against peers with lower active share and allocation. The fund will have a high conviction 30 stock portfolio.

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(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)

( Originally published on Jan 29, 2024 )

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