'It's time investors increase allocation to large cap funds'

Beta was the bet to beat until the party lasted. Now that Mumbai is seeking to regroup after the weeklong bloodletting on D-Street, beta is set to take a vacation - of probably some duration - as large-cap funds return to circulation to help the dazed savers pick up the pieces after the mayhem.

Welcome to the inevitable cycle of fear and greed.

With the Nifty plunging to a four-month low and more than 5% from the all-time high past 20k, money managers now want savers to allocate more money to large-cap oriented schemes and stay away from mid- and small-cap funds that have logged steep gains in the past one year.


Reasonable valuations, steepening US yields and unrelenting dollar strength, uncertainty around the Israel-Hamas war and impending state polls shorten the odds in favour of large-cap funds, they believe.

"There is valuation comfort in large cap stocks as we expect an earnings growth of 15% for the Nifty for 2023-24," says Mihir Vora, chief investment officer, Trust Mutual Fund. Vora points out that there is still some froth in the midcap space where valuations are at a premium to large caps.

The Nifty 50 trades at a PE of 20.92 compared with the Nifty Midcap 150 that trades at a PE of 25.21.

Over the past one year, midcaps and small caps have run faster than large caps, with the Nifty Midcap 150 rising 21.31%, Nifty SmallCap 250 25.58% and the broad-based Nifty 50 only 6.3%.

Due to the sharp run-up in mid- and small-cap stocks, investors have seen a tilt in allocation toward such schemes.

"It is time to be cautious and investors should now make incremental allocation to large caps, "says Nirav Karkera, head of research, Fisdom. He believes mid and small caps are more vulnerable to external events and any global headwinds will benefit large caps.

Karkera believes first-time investors should start with SIPs in the large cap space. Karkera recommends Mirae Asset large cap fund, Canara Robeco Bluechip Fund and ICICI Prudential Bluechip Fund in the large cap space.