 "large-cap funds, equity fund")
Largecap equity funds outperformed mid- and small-cap peers in 2025, supported by relatively stable earnings and more reasonable valuations. Year-to-date, large-cap funds have delivered an average return of 8.9 per cent, compared with 3.6 per cent for mid-cap funds, and -3.9 per cent for small-cap funds.
“Considering that starting valuations in 2025 were expensive for broader markets and especially for mid and smallcap caps, largecaps have outperformed the small- and mid-cap (SMID) category. We are cautiously optimistic about overall markets, especially large caps, considering macros, earnings and valuations,” says Karthikraj Lakshmanan, fund manager (equity), UTI Asset Management Company (AMC).
Reasonable valuations
Largecap equity funds—which invest at least 80 per cent of their assets in the top 100 companies by market capitalisation—are expected to do well.
“Largecap equities appear relatively well placed, with valuations that are reasonable in the context of expected economic momentum and stable earnings profiles. More balanced pricing makes this segment attractive from a risk-adjusted return perspective, offering better valuation support and relative stability in the current market environment,” says Anish Tawakley, co-chief investment officer (CIO), equity, ICICI Prudential Mutual Fund.
Robustness of earnings trajectory will be an important driver. “An uptick in earnings trajectory will come from an improving credit growth cycle, with improving margins and an expected pick-up in consumption demand. On an absolute basis, the largecap category can deliver healthy returns,” says Gaurav Misra, head-equity, Mirae Asset Investment Managers (India).
Largecap companies, many of which are sector leaders, continue to attract investor interest due to their scale, proven professional management, balance-sheet strength, and established business models. “Overall holding by foreign institutional investors (FIIs) is 16.5 per cent, well below the long-term average. When FIIs come back, they will look at large caps for quality and liquidity,” says S. Sridharan, founder and chief executive officer (CEO), Wallet Wealth.
Stay cautious
Inflationary pressures stemming from sustained weakness in the Indian rupee (INR), tepid economic growth in calendar year 2026, and adverse developments on the global trade front could weigh on equity markets, including large-cap equities.
“The delay in trade deals with the US and rupee depreciation are the key risks to watch out for in the near term,” says Lakshmanan.
“If, for some reason, the earnings outlook for the largecap cohort gets weaker as the year progresses, performance could be impeded. The reasons for such a scenario could be external shocks or some unforeseen domestic development,” says Misra.
Who should go for them?
Largecap equity funds remain suitable for conservative and moderate risk-taking investors seeking relatively stable returns. Along with flexi-cap funds, they are expected to form the core of equity portfolios in 2026.
“In an equity portfolio, conservative investors can allocate 70 per cent exposure towards large-cap and 30 per cent towards mid- and small-cap. Moderate risk-taking investors can have 50 per cent towards large-cap and the rest in mid- and small-cap, while aggressive investors can have 30–40 per cent allocation towards large-cap and the rest in mid- and small-caps. Investors should have a time horizon of more than five years,” says Sridharan.
Most investors should opt for passive funds in the large-cap category, given the growing inability of fund managers to beat their benchmarks in this category. Aggressive investors may allocate to active large-cap funds with a strong track record. “Active and passive funds complement each other rather than compete. Active funds, however, can create alpha (excess returns over the benchmark) in the large-cap category through stock selection, identifying future large caps early on, as well as owning some non-benchmark mid-small-cap names that have stronger long-term growth potential,” says Lakshmanan.
