Better risk-reward, FPI flows augur well for largecap MFS

For 2024, analysts tell investors to lower their return expectations from mid and smallcaps

- NIKITA VASHISHT

Amid stretched valuations and lack of positive triggers, analysts suggest that investors lower their return expectations from mid and smallcap equity mutual funds (MFS) in calendar year 2024.

They rather want investors to rotate funds to largecap equity MFs this year for relatively better returns.

"The valuation of mid, and smallcap cohorts isn't very comfortable. Most of the positives are priced in, and a large number of stocks are trading above their intrinsic value. By comparison, a few largecap stocks are trading at reasonable valuations. So, from a risk-return perspective, largecap funds may generate lowerthan-historical average returns in 2024. Mid and smallcap funds hardly have any upside left," said George Thomas, fund managerequity, Quantum Mutual Fund.

Driven by massive foreign fund inflows, stable macroeconomic indicators, and robust earnings momentum, the domestic equity market clocked its best annual return in calendar year 2023 since 2017. The benchmark Nifty50 surged 20.1 per cent, while the S&P BSE Sensex jumped 19 per cent.