How Large & Midcap Funds Can Help Navigate Market Volatility?
Pune, 28th March 2025: Indian equity investors have had a turbulent ride in recent months. The equity market faced sharp correction from the all-time highs due to factors such as, weak corporate earnings, stretched valuations, rising crude oil prices, and geo-political issues that triggered severe foreign investor outflows. Since its peak in September 2024, the Nifty 50 has corrected by 13%, though it has shown resilience, paring some losses of late. Despite the latest recovery, year-to-date, the index is down 3%, while the Nifty Large Midcap 250 index is down by about 8%.
Following the correction, valuations have become somewhat attractive. Large-cap valuations are now more reasonable compared to historical averages, while mid- and small-cap stocks remain largely under pressure. Although small- and mid-cap indices have fallen over 20% from their peaks, they are still not in fair-value territory. However, there are pockets within this segment that appear attractive from a long-term perspective.
Given this backdrop, investors can consider allocating capital to mutual funds having exposure large mid-cap mutual funds, which offer a balanced approach to stock allocation.
According to Chandraprakash Padiyar, Senior Fund Manager at Tata Asset Management, “Investing in large and mid-cap funds offers a unique opportunity to harness the stability of established large-cap companies while capitalising on the growth potential of mid-cap firms. This balanced approach not only helps in trying to mitigate risk but also may help position investors to benefit from both steady returns and significant capital appreciation, making it a good option aiming for long-term wealth creation.”
Corporate earnings have been under pressure in the last few quarters, with Nifty consensus EPS estimates for FY25 revised downward by 2% post the December quarter earnings. Nifty consensus earnings are expected to grow by 4.4% in FY 2025. However, FY26 earnings could see a recovery, driven by robust rural demand, income-tax relief, and interest rate cuts by the RBI. Large private sector banks and a few NBFCs, in particular, could lead the next re-rating cycle with the RBI’s monetary infusion strategies, improving asset quality and ratings upgrade.
This correction has created selective opportunities, particularly in large caps and some mid-cap stocks, but investors should remain cautious given the ongoing volatility and global macroeconomic headwinds, in particular the developments pertaining to trade tariffs in the US. The VIX’s (volatility index) current levels suggest markets remain sensitive to both domestic and international developments, warranting a systematic investment approach as returns may emerge in select areas. Consequently, a bottom up investing strategy and prudent asset allocation remains crucial. For investors seeking stability and growth potential, large and mid-cap mutual funds present a potential option.
Disclaimer: The views expressed in this article are personal in nature and in is no way trying to predict the markets or to time them. The views expressed are for information purpose only and do not construe to be any investment, legal or taxation advice. Any action taken by you on the basis of the information contained herein is your responsibility alone and Tata Asset Management Pvt. Ltd. will not be liable in any manner for the consequences of such action taken by you. Please consult your Mutual Fund Distributor before investing. The views expressed in this article may not reflect in the scheme portfolios of Tata Mutual Fund. The view expressed are based on the current market scenario and the same is subject to change. There are no guaranteed or assured returns under any of the scheme of Tata mutual Fund.
