A recent study by Bajaj Finserv Asset Management Limited emphasises the reliability of large-cap investments across various market conditions. The study reveals that largecaps have closed in the positive territory for 18 out of the last 21 years, showcasing their resilience and consistent performance. Additionally, the large-cap index has outperformed mid and smallcaps during periods of market decline, flat performance, and narrow phases.
Superior Performance in Varied Market Conditions
The study highlights key periods to illustrate the superior performance of largecaps:
Narrow Market Phase (January 2018 to October 2019): During this period, the large-cap index generated positive returns of 8.2 percent. In contrast, small caps and midcaps faced significant declines, with returns of -39.0 percent and -24.1 percent, respectively.
Flat Market Phase (December 2010 to December 2013): In this flat market phase, the large-cap index saw returns of 6.7 percent, while smallcaps and midcaps experienced negative returns of -19.6 percent and -12.0 percent, respectively.
Market Downturn (December 2007 to December 2008): During the global financial crisis, the large-cap index declined by 55.0 percent, but this was still less severe than the falls of 69.7 percent and 58.6 percent witnessed by smallcaps and midcaps, respectively. When the market recovered, largecaps rebounded by 148 percent and regained their capital by September 2010, taking approximately 1.5 years to recover. Smallcaps, however, required an additional 5.2 years to fully recoup their losses, only doing so by June 2014.
Lower Risk and Faster Recovery
Bajaj Finserv pointed out that largecaps tend to offer a relatively low-risk approach to investing in Indian equities compared to small and midcaps, especially given current market valuations. They tend to fall less during downturns and recover more quickly when market sentiment improves. The current valuation of largecaps is closer to the long-term average of 23.1, indicating they are in the fair value zone for long-term investors.
Moreover, it highlighted that the Nifty 100 TRI has experienced significant growth, expanding 33 times over the last 21 years and achieving an annual growth rate of 17.4 percent since its inception. The study also notes that an investment of ₹1 crore in largecaps on January 1, 2003, would have grown to ₹33 crore by June 30, 2024.
Largecaps are attractive investments due to their reliable track record and ability to recover faster from market downturns. They tend to deliver relatively better returns even during tough times, thanks to their strong financials, diverse revenue streams, and experienced leadership. For investors seeking a stable foundation for their portfolios with potential for solid growth, largecaps present a compelling opportunity.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.
