59% of large and midcap stocks are at least 20% below their record highs, offering long-term opportunities: Abakkus MF

Around 59% of stocks in the large & midcap universe are trading more than 20% below their all-time highs following the recent correction, creating an attractive entry point for long-term investments, according to an internal study by Abakkus Mutual Fund.

The study says the current market environment has strengthened the investment case for large and midcap funds. Following the recent correction, a majority of stocks in this universe witnessed meaningful declines from their peak levels, potentially offering attractive entry points for investors looking to build long-term wealth.

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According to Abakkus Mutual Fund, Indian equities are entering an earnings-driven phase where company fundamentals are expected to play a larger role in determining stock performance. The fund house believes large and midcap funds provide a balanced mix of stability and growth by investing in established market leaders as well as emerging businesses with high growth potential.

The study highlighted that largecap and midcap companies together account for nearly 79% of India’s listed market capitalisation, making the category an effective way for investors to participate in the country’s long-term growth story. Under SEBI’s categorisation norms, large and midcap funds must invest at least 35% each in largecap and midcap stocks, enabling investors to benefit from both stability and growth.

Another key finding of the study is that stock selection is likely to become the biggest differentiator. Nearly 103 companies, representing around 48% of the large and midcap universe, have delivered more than a 20% CAGR over the last five years, highlighting the wide variation in returns within the segment and reinforcing the importance of active fund management.
The report also pointed to a disconnect between earnings growth and stock prices. Over the last two years, large and midcap companies recorded 14-16% earnings growth, while stock prices increased by only 1-2%. According to the fund house, this divergence suggests there could be room for stock prices to catch up with improving fundamentals over time through mean reversion.”Markets are increasingly rewarding businesses with strong fundamentals rather than broad market participation. Large & Mid Cap Funds offer investors the opportunity to combine the resilience of established market leaders with the growth potential of emerging companies. With valuations becoming more reasonable and earnings outlook improving, we believe the category offers an attractive avenue for long-term wealth creation through disciplined investing,” said Vaibhav Chugh, CEO, Abakkus Mutual Fund.

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The fund house said its investment approach is guided by its proprietary MEETS framework, which evaluates companies based on management quality, earnings strength, industry events and trends, investment timing at reasonable valuations, and structural growth opportunities.

With India’s long-term growth fundamentals remaining intact, Abakkus Mutual Fund believes large and midcap funds are well placed to benefit from the country’s next phase of economic expansion.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)

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