Decline in large-cap funds: What is impacting the investment climate?

During the first quarter of FY24, Indian market exhibited exceptional performance by rallying upward sharply. This bullish rally surprisingly took place amid interest rate hike by developed economies and rising concerns over global recession. In the April-June quarter, FPIs (Foreign Portfolio Investments) invested Rs 1.02 lakh crore ($12.5 billion) in the Indian market in April-June quarter which can be attributed to a plethora of reasons. 

Also, Large cap funds offered an average return of 11.5%, holders of the fund reaped decent gains. However, in the last fiscal year, large cap funds investors suffered losses as 88% of active Indian large-cap funds underperformed the S&P BSE 100 in 2022. The average return of large cap category in the first half of the year (Jan to June) was 7.03%. 

According to the recent data, large-cap funds are slowly gaining traction yet there is a decline in their performance in comparison to small and mid-cap funds. This has caused the retail investors to rush towards the small cap and mid cap mutual funds. According to the data released by Association of Mutual Funds in India, large cap Funds in July experienced the highest outflow of Rs 1,880 crore against inflows worth Rs 4,171 crore and Rs 1,623 crore into small and mid-cap funds. In addition to the lower upside potential, one of the reasons for investors’ hesitancy towards large-cap funds is their underperformance over the last few years.

The investment environment of the Indian market is experiencing a series of fluctuations. India has surpassed China as the most appealing emerging market for investment, yet there are a number of hurdles impeding the growth of Indian equity.

Conclusion

The investment climate is influenced by a multitude of factors, each contributing to the complex and ever-evolving dynamics of financial markets. From IPO listing gains facing a new normal to the underperformance of large-cap funds, investors must navigate through a terrain marked by uncertainty and changing trends.

In such a climate, it becomes crucial for investors to adopt a well-informed and diversified approach. Staying abreast of market trends, conducting thorough research, and seeking professional financial advice can help investors make informed decisions. It is essential to understand that investment success is often driven by a long-term perspective, sound fundamentals, and a willingness to adapt to changing market conditions. By doing so, investors can position themselves to weather uncertainties and achieve their financial goals in an ever-changing investment landscape.