WHEN IT comes to investing in equities, an investor can choose a large-cap, mid-cap or small-cap fund. Each of the three categories of market capitalisation presents its own set of opportunities and risks. Large-cap stocks represent established enterprises selected from the top 100 stocks by market capitalisation, while the mid- and small-caps represent business entities with higher growth potential over the long term. So, how does one make a choice if the investments are intended for the long term?
That is where a multi-cap fund comes in. Without any pre-specified capitalisation bias, a multi-cap fund can equip the portfolio with the best of both worlds. The portfolio will consist of large-, mid- and small-caps stocks, giving an investor the ability to reach for opportunities of all sizes present in the market. However, the proportion of allocation between each of the market capitalisation is up to a fund manager’s discretion.
Looking at the current scenario, the markets are offering exciting investment opportunities across different sectors such as corporate banks, central public sector enterprises, consumer companies and pharmaceutical companies. With the asset quality close to bottoming out, the market recovery can be steep in corporate banks with the expectations of lowering provisioning costs. Similarly, the concerns over the US Food and Drug Administration in the pharma space are steadily receding, and pharmaceuticals along with the consumption space continue to be a long-term story with India vying to be a part of the $5-trillion economy club.
Volatile markets, coupled with corrective trends, can cause a rapid transition of the stocks from one capitalisation category to another. Post the recent corrections in the equity markets across the segments, the valuations have become far more reasonable than what they were a year ago. For the investors with long-term investment horizons, the case for making staggering investments in the equity markets, especially in the multi-cap segment, has gotten stronger. One of the consistent performers in this category is the ICICI Prudential Multicap Fund.
The markets have been highly volatile during the past few months, and the investors are showing interest in the markets due to reasonable valuations. Post the Union budget, the market sentiments have moderated on account of large-scale selling spree by the foreign investors. However, considering several policy initiatives for the long-term economic growth incorporated within the budget, the long-term growth outlook continues to be intact. A multi-cap investment approach can come to the rescue of investors in such times, as the flexibility to invest across the market capitalisations can help them to adopt both the growth and the value investment strategy.
Anand K. Rathi is Managing Partner, Augment Capital Advisors LLP