Rs 1 cr to Rs 33 cr in 21 years: Study explains why large-caps are reliable

Large Cap stocks, essentially shares of companies with a substantial market capitalization, have  posted positive returns in 18 out of the last 21 years, noted a study  by Bajaj Finserv Asset Management The study also shows that the large cap index performed relatively better than mid and small caps during the falling, flat, and narrow market phases and tends to recover losses earlier than mid and small caps in various market conditions. 
 

During the narrow market period from January 2018 to October 2019, the large-cap index generated positive returns of 8.2%. In comparison, small caps and mid caps were negative, generating -39.0% and -24.1%, respectively. Similarly, from December 2010 to December 2013, when markets were flat, the large cap index generated 6.7% returns, while small caps and mid caps generated -19.6% and -12.0%, respectively.

From December 2007 to December 2008, during a market downturn, the large cap index declined by 55.0%. Small caps and mid caps fell much more, by 69.7% and 58.6%, respectively. Interestingly, when the market turned around, large caps rebounded by 148% and regained their capital by September 2010, taking approximately 1.5 years to recover from their lowest point of the global financial crisis. In contrast, small caps required an additional 5.2 years, fully recouping their capital only by June 2014.

"Large caps tend to be a relatively low-risk approach of investing in Indian equities than small and mid caps, especially at the present market valuation. Large caps tend to fall lesser than their peers in mid and small cap space and thus recoup their losses much faster when sentiment turns. The current valuation of the large caps is closer to the long-term average of 23.1, indicating that the large caps are in the fair value zone for long-term investors," noted the study. 

Overall, the Nifty 100 TRI has seen 33x growth in the last 21 years and 17.4% since its inception. As per the study, if Rs. 1 crore had been invested in large caps on January 1, 2003, the corpus amount on June 30, 2024, would be Rs 33 crore. 

"In conclusion, large caps are relatively attractive investments due to their reliable track record. These established companies tend to recover faster from market downturns and deliver relatively better returns even during tough times. This resilience is driven by their strong financials, diverse revenue streams, and experienced leadership. Large caps present a good opportunity for investors seeking a stable foundation for their portfolios with the potential for solid growth," added the study.

Disclaimer:

Investing in the stock market involves significant risk, including the potential loss of your principal. Past performance is not indicative of future results. It is essential to conduct thorough research or consult with a financial advisor before making any investment decisions.