Active large-cap funds can outperform in next 3-5 years: Ashwini Shami

We find the large-cap segment to be the most fairly priced compared to mid and small caps at the broad level, says Ashwini Shami of OmniScience Capital.

Largecap funds are seeing consistent outflows, while investors are ploughing money in mid- and small-cap schemes. However, Ashwini Shami, president & chief portfolio manager at OmniScience Capital, expressed concerns over SMIDs' rich valuations and rather finds active large-cap schemes focusing on mispriced pockets in top-100 stocks better placed in the next 3-5 years. Furthermore, he shares his outlook with Saloni Goel in an email interview on the Fed’s next move, the defence stocks' rally, and sectors that could offer better opportunities for investors. Edited excerpts:

 

The Fed is slated to meet in mid-September. What are your expectations on the rate hike front and possible implications for Indian stock markets? 

 

There is a higher probability of a 25-basis-point increase compared to the status quo on policy rates. An important input for the committee will be the core CPI number, which is scheduled to come out on 11th September. While the core CPI is currently expected to remain in line with last month's reading, crude prices moving closer to $100 per barrel over the last few weeks have raised inflation concerns. The robust jobs data has also significantly increased the expectation of an interest rate hike. 

Why is the last two months' FII buying not reflected in Nifty stocks? 

While FIIs turned net buyers in the months of July and August 2026, the quantum of net buying was significantly lower than the net selling observed over the preceding four months. In the current month, FIIs have again turned net sellers as yields on US Treasuries went up by 15–20 bps over the last two weeks. Additionally, mutual fund flows indicate that large-cap schemes have seen continuous net outflows over the last two months, negating any net buying from FIIs. CHECK Stock Market LIVE Updates 

What does the lack of returns mean for passive investors? Should they consider shifting to actively managed funds? 

This is an opportune time to remind ourselves that past returns are not indicative of future performance. Investors must consider parameters such as current valuations and long-term, sustainable growth outlooks while deciding on their allocations. More than the active versus passive approach, fund flows seem to be a bigger driving factor impacting the performance of broader market segments. AMFI data indicates that small-cap, mid-cap, and multi-cap schemes continue to receive the dominant share of equity inflows, while large caps are witnessing selling pressure from both MFs and FIIs. The large inflows into small-cap and mid-cap schemes are concerning given their premium valuations. We expect large caps could be more rewarding for long-term investors, with active large-cap schemes focusing on mispriced pockets in top-100 stocks to potentially generate better performance over the next 3–5 years. 

There is a big surge in block deals and IPOs on D-Street. Is easy retail money giving an easy exit to promoters and PE investors? 

IPOs bring fresh investment opportunities for investors. However, they are seldom favorably priced for long-term investors. We strongly recommend investors not jump onto the bandwagon just to capture listing gains, but rather invest only when these new ideas are available at fair valuations once the initial excitement settles down. Check - TOP GAINERS NSE | TOP LOSERS NSE 

Defence stocks are in an uptrend for a third year running. Is this rally showing signs of fatigue? Any particular stocks that you like from the pack? 

The Nifty India Defence index is currently trading at a price-to-earnings multiple of 59.7, which indicates that the sector is fully priced for anticipated high growth. Therefore, investors should rationalize their return expectations from pure-play defence stocks. We recommend that the defence theme now be looked at from a geo-strategic viewpoint. Globally, we have seen a shift where conflict situations have involved trade tariffs, trade routes, critical minerals, and energy supplies. Hence, the imperative shifts equally towards financial institutions, logistics, minerals, energy, and other firms that operate in these critical areas.

 

Ahead of the festive season, which sectors would you suggest investors look into? 

We find the large-cap segment to be the most fairly priced compared to mid and small caps at the broad level. Small caps, being a large universe of stocks, offer various mispriced opportunities. However, one needs a careful bottom-up approach to identify investment-worthy companies. From a sectoral viewpoint, banks, infra NBFCs, HFCs, power, select energy transition stocks, business services stocks, EPC, and select infrastructure names offer a strong growth outlook while being available at much more attractive valuations. 

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