LARGE-CAP

FOR MOST INVESTORS, large-cap funds are the comfort zone of equity investing — familiar names, proven business models and companies that are sturdy enough to withstand the market’s sudden jolts. These funds, which must invest at least 80% of their assets in large-cap stocks under Sebi rules, offer stable, long-term growth without the turbulence often associated with mid- and small-cap themes.

Yet even in this seemingly safe space, success hinges on the rare ability to consistently outmaneuvre the benchmark — a skill that defines fund managers such as Sailesh Raj Bhan, president and chief investment officer, equity invesments, Nippon India Mutual Fund. For more than two decades, Bhan has built a reputation for reading market cycles with unusual clarity, and for blending discipline with opportunistic thinking. He is known for his ability to navigate shifts in leadership within sectors, and identifying phases where market breadth changes sharply.

Bhan explains that alpha generation (returns above the benchmark) in large-caps is neither accidental, nor instantaneous. “Across any category, alpha is ultimately the result of taking the right kind of risk compared with the benchmark over a three-to-five-year period,” he says. Markets, he notes, move through a series of sub-cycles in that time — sometimes powered by just a few mega-caps, sometimes creating valuation gaps within the same sector, and often responding to broader economic cues such as interest rate shifts. These cycles, he believes, create pockets of opportunity for fund managers who are willing to look past the obvious.

Experts agree. “Some large-cap funds are still beating the Nifty100 TRI [total return index], and if the fund manager gets the allocation right and catches the pockets [with] stronger momentum, they can keep outperforming,” says Navy Vijay Ramavat, MD, Indira Securities.

Beyond spotting trends, Bhan stresses the importance of qualitative strengths that go into sustained alpha creation — robust research teams, disciplined risk frameworks, and a commitment to avoid overpriced stocks or pure momentum trades.

Maintaining an optimal active share and relying on long-term track records across cycles can make a meaningful difference, says Bhan. While alpha potential varies across categories, he believes India still offers rich opportunities even in large-caps, particularly in emerging segments such as insurance and new-age business models that remain under-represented in major indices.

In short, large-cap funds may look steady on the surface, but the skill lies in reading the undercurrents — and that, as Bhan suggests, remains an active craft.

MID-CAP

MID-CAP FUNDS often sit in the middle of the investing world — neither as steady as large companies, nor as risky as the very small ones. They focus on firms ranked roughly between 101 and 250 by market value among the BSE 500 stocks. Mid-caps offer fast growth but remain vulnerable to global shifts, making them volatile for investors.

Niket Shah, chief investment officer, Motilal Oswal Mutual Fund, and fund manager, Motilal Oswal Midcap Fund, has a different way of reading the numbers. “Back home, if we analyse the Q2FY26 results, mid-caps and small-caps delivered 27% and 37% YoY earnings growth, respectively, in spite of [macro and global] headwinds. Investors must have an allocation to this category, over the long term.”

Shah has built a reputation for patient, disciplined investing, on the back of a strong research-driven approach. “We have 365 days in a year and if you strip off holidays and weekends, technically we work for 260-270 days. Now, if a portfolio has 100 stocks, technically you have given 2.6 to 2.7 days per stock to do research.”

That’s why, claims Shah, Motilal Oswal chooses depth over breadth. The fund usually holds 25–30 stocks, staying true to its QGLP philosophy — buying high-quality businesses with strong growth and long-term potential at reasonable prices. “Every stock that is bought in the portfolio goes through a rigorous process before entering the portfolio. While concentration sometimes does have higher volatility, over the long run, if managed well with processes and risk frameworks in place, it can create magical returns,” says Shah, who believes for investors willing to stay the course, the mid-cap space still holds stories that are yet to unfold.

Industry experts offer a word of caution though. “Mid-caps are more focussed on their niche and don’t always have the balance-sheet strength to deal with sudden policy shifts, especially big ones like changes in U.S. trade rules or tighter global capital flows. Mid-caps react faster to global swings. Investors who aren’t comfortable with higher volatility should avoid going too heavy here,” advises Ramavat of Indira Securities.

SMALL-CAP

SMALL-CAP FUNDS invest at least 65% of their assets in companies ranked 250 and below by market capitalisation within the BSE 500 index. Between FY21 and FY24, small-cap earnings grew at 25-35% CAGR, well above the long-term average of 12%.

But the pace is unlikely to continue, say experts. “As we enter FY25-27, we expect this to moderate to 12-15%, creating vulnerability in pockets where valuations have expanded 40-50% above pre-Covid levels,” claims Nehal Mota, CEO and co-founder, Finnovate, a financial fitness planning platform.

Stronger balance sheets will be the need of the hour, adds Ramavat of Indira Securities. “In FY25-27, earnings quality will become crucial. Investors should look for holding firms with cleaner balance sheets, stable cash flows, and the ability to grow without constantly needing fresh capital.”

Amid this growing emphasis on financial strength and disciplined growth, investors are increasingly turning to seasoned fund managers — such as Samir Rachh, senior fund manager, equity investments at Nippon India Mutual Fund — for direction. With over two decades of experience in equity research and fund management, Rachh has built a reputation for being calm, process-driven, and deeply research-focussed.

Rachh believes investors now have a choice. “Investors have two options. They can wait for valuations to decline. It can happen in two ways. Price corrects further and earnings outlook improves. But the problem is you are trying to time the market, and timing the market is one of the most difficult things.” That is why, he says, the second option is far more realistic. “Continue to have faith in the long-term potential of India and invest in a systematic manner.”

For Rachh, research, along with long-term thinking, are the defining factors in successful small-cap investing. “Small-cap investing is not a sprint; it’s a marathon. You can do sprints up to a certain size of the fund, but thereafter impact costs are very high. Hence, long-term investment is the best way of investing in small-caps.”

ALL-CAP

The HDFC Flexi Cap Gr fund has long been popular for its adaptability. Over the past year (FY25), it delivered roughly 8%, a modest yet steady outcome in a cycle marked by bouts of volatility. But a bigger story has been unfolding behind the scenes — leadership change.

For four years, Roshi Jain, a senior equities fund manager, steered the fund. She managed HDFC AMC’s flagship products, including the Flexi Cap fund, before stepping down in December 2025.

With Jain’s exit, Chirag Setalvad, one of the firm’s most experienced names, has taken over the reins, effective December 8. As head of equities at HDFC AMC, Setalvad is renowned for his disciplined, long-term approach while managing complex portfolios. “In a flexi-cap strategy, the ability to dynamically allocate across large-, mid-, and small-cap segments is a meaningful source of alpha, but it must be backed by a disciplined framework rather than short-term market signals,” he says.

For investors, the first step is to understand the fund’s investment philosophy, he adds. “Equally important is the depth of the research team supporting the fund manager.” In today’s environment, advisers consider a flexible allocation of 50-60% to large-caps for stability, 25-30% to mid-caps for growth, and 10-20% to small caps for long-term upside.

Mota of Finnovate, says, “When the large-cap vs small-cap value difference grows beyond 20-25% or when earnings visibility improves in particular segments, investors should investigate whether managers modify exposure.” Consistency in bottom-up research, risk management, and methodical rotation between market sizes, she adds, are essential traits.

Ramavat of Indira Securities offers a more investor-centric view. “Investors should check if the fund’s allocation suits their comfort level, whether the manager adjusts exposure smartly with the cycle, and if stock picking remains disciplined across cap sizes. Multi-cap or even hybrid funds can also be considered.”

As it enters a new chapter amid a market shift, all eyes will be on how Setalvad shapes the next phase of HDFC Flexi Cap fund’s story.