Time to revisit largecaps, avoid concentration of small, midcaps: Axis MF

The fund house advises investors to rebalance portfolios towards large-cap stocks, citing improving earnings visibility, supportive macro conditions and attractive valuations

Improving earnings visibility, supportive domestic macroeconomic conditions and relatively attractive valuations make a strong case for increasing exposure to large-cap stocks, Axis Mutual Fund (MF) said in a note, adding that investors should adopt a more balanced allocation instead of remaining heavily skewed towards small and midcap (SMID) shares.

 

"The macro backdrop today is different from the early post-pandemic years. Nominal gross domestic product (GDP) growth is improving, credit growth is supportive, domestic demand indicators remain resilient and several largecap sectors continue to trade at reasonable valuations. The next phase may therefore not be about choosing between large caps and SMIDs. A more balanced approach that includes high-quality largecap businesses could prove increasingly valuable as market leadership broadens," it said.

 

 

The MF said that while India's structural growth story remains intact, the investment landscape has changed as global uncertainties such as geopolitical tensions, tariffs, supply-chain realignment, volatile commodity prices and currency movements have increased the importance of earnings resilience and valuation discipline. "Large caps deserve a fresh look. Not only do they remain integral to India's long-term growth story, but many now offer an attractive combination of earnings visibility, financial strength and more reasonable valuations after a prolonged period of relative underperformance," the note said.

 

According to Axis MF, the earnings trajectory of large-cap companies has historically aligned closely with nominal GDP growth. It said Nifty 50 revenue growth is expected to touch nearly 19 per cent, the strongest pace in three years, supported by improving domestic economic conditions. However, the margin pressures could limit earnings growth.