With no upside left in mid and small caps; large cap mutual funds still a good buy in 2024: Report
high valuations and lack of further positive triggers, investors are expected to lower their return expectations from mid and small-cap equity mutual funds (MFs) in the calendar year 2024, reported Business Standard. Instead, they want investors to invest money in large cap equity mutual funds for better returns. Driven by inflows from foreign institutional investors, stable macroeconomic indicators, and robust earnings momentum, the domestic equity market reported its best annual return in calendar year 2023 since 2017.
The benchmark Nifty50 rose 20.1 per cent, while the S&P BSE Sensex spiked 19 per cent. The data provided by Association of Mutual Funds in India (Amfi) shows that large cap equity mutual funds witnessed outflows of ₹2,687.2 crore between April and November 2023. Conversely, the Nifty midcap index spiked 46 per cent, and the small cap index rose 48 per cent in 2023.
The cumulative share of flows into small and midcap categories over the past three years now stands at 28.3 percent against assets under management (AUM) share of 19 per cent, according to Amfi. “The valuation of mid, and small cap cohorts isn’t very comfortable. Most of the positives are priced in, and a large number of stocks are trading above their intrinsic value.
By comparison, a few large cap stocks are trading at reasonable valuations. So, from a risk-return perspective, large cap funds may generate lower than-historical average returns in 2024. Mid and smallcap funds hardly have any upside left," said George Thomas, fund manager equity, Quantum Mutual Fund.
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