Large Cap , Midcap, Flexi or Balanced who stand where in 2024 & 2025?

 

Being an advisor it becomes quite difficult to figure out in a bull market which category of Mutual Funds were the best in performing and at the same time jotting down the upcoming trends. At the same time their a craze in the market about Micro-cap and small-cap. Well as long as the SEBI does not enhance the bucket of stocks in Large, Midcap and Small cap this segment will remain dicy.

Thanks to the fall in the market, the analysis and the outlook projection are easier for the advisors. We delved into the CY 2023 and 2024 to figure out which category of Mutual funds has performed and at the same time dug out which segment should be kept in mind in the upcoming volatility ride.  In the last 6 years from 2018 when the segmentation classification of No of stocks was made Indian capital market, economy and stock valuations have changed a lot. 

·    Total Demat Accounts: 2014 - 2.2 crores  v/s DP accounts 2024 - 18.2 crores

·    DP accounts Mutual fund Folios: 2014 - 3 crores v/s MF Folios 2024 - 22 crores MF Folios

·    IPO mobilisation : 2014 : $1.3 Billion  v/s 2024 : $17.3 Billion

Hence the classification change will only lead to the creation of wealth and opportunities for stable investments in Micro micro-cap and small-cap segment. Unless the basket changes the innovation and discovery will not lead to stable returns for the long term.

We examined the performance of various mutual fund categories in 2023 and 2024, focusing on two key metrics: average excess returns over the benchmark (BM) and the percentage of funds outperforming the benchmark. The data provides valuable insights into how different fund categories performed in contrasting market conditions, highlighting trends, strengths, and areas of improvement.

Mutual funds are a popular investment avenue, and their performance relative to benchmarks is a critical factor for investors seeking to maximize returns. This study evaluates six fund categories—Large cap, Large & Midcap, Flexi cap, Multicap, Midcap, and Small cap—providing a comparative view of their effectiveness and adaptability across two years. By identifying patterns and shifts in performance, this analysis aims to guide investors in making informed decisions for portfolio diversification and risk management.

Analysis Category wise:

1. Large cap Funds:
• 2023: Average excess return of 3.34%, with 73% of funds outperforming the benchmark.
• 2024: Slight improvement in performance, with an excess return of 3.38% and a higher proportion of funds (87%) outperforming the benchmark.
• Insight: Large cap funds demonstrated consistent positive performance, with a notable increase in the percentage of outperforming funds in 2024.
2. Large & Midcap Funds:
• 2023: Negative average excess return of -0.48%, with only 35% of funds outperforming the benchmark.
• 2024: Significant recovery, with a strong excess return of 6.94% and 75% of funds outperforming.
• Insight: This category saw the most dramatic turnaround, indicating that it benefited from market conditions or strategic shifts in 2024.
3. Flexi cap Funds:
• 2023: Positive average excess return of 2.97%, with 72% of funds outperforming the benchmark.
• 2024: Improved further to an excess return of 5.93% and 79% outperforming.
• Insight: Flexi cap funds exhibited strong and improving performance, showing adaptability across market cycles.
4. Multicap Funds:
• 2023: Modest performance with an excess return of 0.74% and 44% of funds outperforming.
• 2024: Significant improvement, with an excess return of 5.95% and 87% outperforming.
• Insight: Multicap funds shifted from average to excellent performance in 2024, suggesting effective diversification strategies.
5. Midcap Funds:
• 2023: Poor performance with a negative excess return of -5.48% and only 14% of funds outperforming.
• 2024: Sharp recovery, achieving an excess return of 6.04% with 72% outperforming.
• Insight: Midcap funds experienced one of the most significant comebacks, indicating a shift in market sentiment or improved fund management.
6. Smallcap Funds:
• 2023: Worst performance, with a negative excess return of -5.71% and just 21% of funds outperforming.
• 2024: Modest recovery to an excess return of 2.16%, with 44% outperforming.
• Insight: While small cap funds improved, they remained the weakest-performing category overall.

 Aggregate Analysis:

1. Average Excess Return:
• 2023: Negative average excess return of -0.77% across all categories.
• 2024: Significant improvement to a positive average of 5.07%.
• Insight: Overall fund performance improved dramatically in 2024, likely due to favourable market conditions.
2. Percentage of Funds Outperforming the Benchmark:
• 2023: Only 43% of funds outperformed the benchmark on average.
• 2024: This increased to 74%, showing a broader improvement across fund categories.
• Insight: The overall success rate of funds in beating the benchmark increased substantially, reflecting enhanced fund management or more favourable economic conditions.

 Conclusion

Large-cap and Flexi cap funds demonstrated consistent strength, making them reliable choices for steady returns. On the other hand, categories like Large & Midcap, Midcap, and Multicap funds showcased remarkable turnarounds, signalling their potential for outperformance in favourable market conditions. 2025 will be the year of Large and Midcap.

Small-cap funds, while improving in 2024, lagged behind other categories, indicating higher risks and inconsistent returns. The overall increase in the proportion of outperforming funds (from 43% in 2023 to 74% in 2024) reflects improved market conditions and effective fund management strategies. There is no point in thinking about Micro-cap and small-cap since discovery only helps when the basket is big enough.  2025 will be a different year compared to the last 4 years where every individual client behaved like a Fund Manager. Making money in stocks was the easiest in the last 4 years but no longer from here. It's time to get back to Financial advisors and seek their help. Many are demanding mutual funds in the category of micro-cap and small-cap blends. Well, we have to wait for long until someone wakes up.

Investors should focus on a balanced portfolio, leveraging the consistency of Large-cap and Flexi cap funds while selectively exploring Multicap and Midcap funds for higher growth opportunities. Small-cap funds, though still recovering, may require cautious investment with careful monitoring of market trends.