Fund managers advise flexi-cap and large-cap schemes for now

The domestic markets have come off around 7 per cent from the 2022 highs and many fear further weakness as the US Federal Reserve policy takes a hawkish turn. Besides, rising geopolitical tension and a spike in oil prices are weighing on stock prices.

According to fund managers, flexi-cap and large-cap schemes may weather the current storm better. They say despite the fall, valuations are not yet attractive and further weakness in the mid-cap IT and the consumer discretionary segments can result in good buying opportunities.

Investors should also stay focused on asset allocation, invest in profitable companies, and opt for a combination of active management and multi-asset strategies, money managers advise.

“Investors should continue to allocate in a systematic manner into diversified schemes, such as flexi-cap, large-and mid-cap; mid-and small-cap for investors with higher risk appetite and long tenure and specific themes, such as health care (where valuations are reasonable) and infrastructure (as we witness strong spending push from the government),” says Vinit Sambre, head-equities at DSP Investment Managers.

Market participants also say that domestic factors, such as the upcoming Union Budget and corporate earnings, are likely to hold sway over the near term.

“If you are considering an equity-related investment, invest with a long-term view and opt for scheme categories which have the flexibility to invest across market capitalisation and themes. Since India's business cycle is on a strong footing, equity investors may consider business cycle funds, as well,” suggests S Naren, ED and CIO at ICICI Prudential AMC.

There has been an emphasis on flexi-cap funds because they provide a one-stop solution to capture the opportunities across market capitalisation. Flexi-cap funds permit fund managers to invest across the large-, mid-, and small-cap buckets without any minimum threshold.

In the past year, on average, flexi-cap funds have managed to give better returns than large-cap funds. The data from Value Research shows that, on average, flexi-cap funds have given returns of 28.41 per cent in one year against 23.52 per cent generated by large-cap funds.

Fund managers say equity investors will have to brace for more volatility in the short term.

Sorbh Gupta, fund manager-equity at Quantum AMC says: “Given the interest rate increases that are expected to happen, we believe that there can be more pain, especially in high valuations and high P/E companies and some of the newer listed names which are getting valued at a higher price level.”

Anand Radhakrishnan, managing director & chief investment officer-emerging markets equity (India) at Franklin Templeton says that from an investment perspective, with index levels across all market capitalisation categories staying elevated, "we recommend a staggered and systematic approach instead of making lump-sum investments at this juncture".