Stories
Large-Cap Funds Look More Attractive for Fresh Investments Now
- •DSP Mutual Fund's Netra report suggests large-cap funds are increasingly attractive for deploying fresh capital after years of strong performance by small- and mid-cap stocks.
- •Historically, small- and mid-cap outperformance does not last forever, and these stocks often surrender additional bull market gains during downturns.
- •Valuations heavily favor large caps, with the Nifty 50 trading below its long-term median, while small- and mid-cap valuations remain stretched.
- •Investors are advised to focus on the margin of safety, consider portfolio rebalancing, and use the SIP route for small- and mid-cap exposure rather than lump-sum allocations.
Key Questions Answered
According to the DSP Mutual Fund Netra report, large-cap funds currently look more attractive and offer a better risk-reward trade-off for fresh money due to favorable valuations. Meanwhile, for small- and mid-cap exposure, investors are advised to continue via the SIP route rather than making large lump-sum allocations.
At the end of September, the Nifty 50 traded at a trailing P/E of 19.26 times and a P/B of 2.75 times, which the report describes as fair or cheap. In contrast, the Nifty Midcap 150 stood at 27.6 times P/E and the Nifty Smallcap 250 stood at 33 times P/E, remaining still stretched.
The report suggests that investors already holding small- or mid-cap funds should consider portfolio rebalancing, as the recent market rally may have increased their overall exposure to these segments.
