“Large caps offer relative security as well as growth”
Large-cap mutual funds have proven their worth in these troubled times. Toppers have given over 60%, while most funds have given over 45% in the past year. How do you see this performance?
Large cap mutual funds are ideal solutions for investors who intend to enter the markets as newbies. They are also suitable for long-term investors looking to build a long-term investment relationship with stocks and build wealth in the medium to long term. A typical large cap mutual fund as defined by SEBI invests at least 80% of its assets in the top 100 companies by market capitalization. These companies tend to be well studied and widely followed. It also means that many of these companies are liquid and relatively less volatile than their mid and small cap counterparts.
The performance of large cap funds has been in line with the broader market direction. Since the scale of the rally is significantly larger, unlike the previous cycle, this category performed well.
Actively managed large-cap funds have regained the top positions in the current rally. Do you think these large cap funds are going to make a comeback?
Large-cap funds give investors the right insight into the market. Today, the top 100 companies represent almost 75% of the overall market capitalization of all listed companies in India (source: NSE). Therefore, it is safe to say that investors who just want to gain exposure to stocks can stick with a simple large cap fund and benefit from the growth of those companies. In recent years, the quality profile of large cap companies has improved considerably.
With the advent of CSR, ESG and a multitude of regulations, these companies have become torchbearers of transparency, disclosure and clean business practices. While there are isolated instances of negativity, overall these companies have been successful in building and strengthening investor confidence. The payoff for them and investors is that these companies are well rated and there is a continued demand for their shares from all types of investors, be they foreign investors, institutions. nationals like us or individuals.
Large cap funds were everyone’s preferred choice during times of turmoil. However, investors are now betting on other categories. Is this the new reality?
In essence, your question is also your answer. Large-cap funds are all-season equity investment solutions. Large caps, as I mentioned due to their market attributes, tend to have lower volatility than mid and small caps. Also because of their business outlook, these companies tend to outperform small businesses due to their market leadership and the scale of their operations. Companies that do not stay competitive are quickly replaced by more agile and efficient companies.
In addition, large cap companies are generally leaders in large sectors. They represent various segments of the economy, including the service sector, manufacturing and exports.
Today, in the plethora of funds that investors can choose from, most strategies that are independent of market capitalization generally favor large caps for the precise reason that they perform well on fundamental attributes and are sufficiently liquids to trade in large quantities. .
The investor psyche is pretty much the same. Therefore, large cap funds can be a central position in well-managed investor portfolios.
Many investors believe that most flexi cap funds also invest in large stocks. This is the reason they cite to justify investing in flexi cap funds instead of large cap funds when they worry about the market. What do you say to these investors?
Based on the individual risk appetite if the investor is clear on his call for asset allocation in equities, as to the percentage of his exposure to equities should be large / medium / small. In this case, it is recommended to choose a bunch of funds in each category.
India is a stock picking market. With the pace of disruption, we are finding more and more opportunities across the market capitalization spectrum for companies with high growth attributes, well managed balance sheets and high quality niche activities. Primary markets and private space have also become great hunting grounds as investors seek alpha.
Flexicap and multicap funds fill this gap for investors looking for a single fund to meet their investment needs. I manage the Axis Bluechip fund as well as the Axis Flexicap fund and the Axis Midcap fund. All three funds have unique investment mandates and as such their portfolios are positioned based on what I believe is the best opportunity defined in those investment mandates.
For investors looking to select a specific type of fund, they should assess the needs of their portfolios. Large caps offer relative security as well as growth. Mid and small caps are high growth and high yielding, but they also carry their share of risk.
The market is at an all time high. Should investors be very careful? What should their strategy be?
The markets at an all time high is a fact. However, the value of Sensex or Nifty is an indicator of how well your investments are performing and as such should not be a barometer for deploying or redeeming investments. Ultimately, when you buy stocks directly or through mutual funds, you are participating in the profits of a company or portfolio.
New investors entering the stock markets should not be fooled by the recent rise, but rather focus on the long-term potential of investing in equities. A systematic investment plan is an ideal solution for investors. We remain vigilant in identifying markers and have used high valuations to rotate our portfolios. Investors can expect volatility in the short term and should use steep market declines to consistently increase existing allocations.
The active versus passive debate is still unresolved. What is your point of view ? Anecdotal evidence suggests that investors are preparing for index funds.
The passive story has played out very well in India over the past decade. While the absolute growth in assets under management has been driven by pension funds and government agencies which significantly allocate to equities through ETFs, there has been a major awareness campaign that has enabled investors to appreciate the benefits. benefits of low cost investment.
The West has seen widespread acceptance of this since the markets there reached a stage of market efficiency where an active fund manager has limited leeway to significantly outperform benchmarks. In India, given the dynamism of the markets and the improvement in market knowledge, there is also an opportunity for active management. Today’s investor portfolios should seek to split the two types of products to get the most out of their equity investments.