Large & Mid-Cap Funds Gain Appeal as Valuations Ease, Says Abakkus Mutual Fund

Large & mid-cap funds have become an attractive investment category as improving corporate earnings and relatively lower market valuations create favourable conditions for long-term investors, according to an internal study released by Abakkus Mutual Fund.

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The study found that nearly 59% of stocks in the large and mid-cap universe are currently trading more than 20% below their respective all-time highs. According to the fund house, the recent correction has improved valuations across the segment while earnings growth has remained resilient.

Large-cap and mid-cap indices are also trading below their long-term average valuation levels despite steady improvement in corporate profitability, the study noted.

Earnings Growth Has Outpaced Stock Performance

Abakkus Mutual Fund said a gap has emerged between earnings growth and share price performance over the past two years. Companies within the large and mid-cap universe recorded earnings growth of around 14-16% during the period, while stock prices advanced only 1-2%.

The report said this divergence suggests that valuations have not fully reflected the improvement in business fundamentals. With strong earnings growth continuing, the gap between financial results and stock prices is likely to diminish over time.

When considering investments in diverse equity strategies, investors can use a single fund to get exposure to mature firms as well as growth-oriented businesses.

Allocation Framework Offers Balanced Exposure

Under Securities and Exchange Board of India (SEBI) regulations, large & mid-cap funds are required to invest at least 35% of their portfolio each in large-cap and mid-cap companies. This allocation framework is intended to combine the stability generally associated with large companies with the expansion opportunities available in mid-sized businesses.

The study also pointed to the importance of stock selection within the category. It said nearly 103 companies, representing around 48% of the large and mid-cap universe, delivered a compound annual growth rate (CAGR) exceeding 20% over the past five years.

According to AMFI market capitalisation data for December 2025, cited in the report, large-cap and mid-cap companies together account for nearly 79% of India’s listed market capitalisation.

Fund House Sees Focus Shifting to Fundamentals

Commenting on the findings, Vaibhav Chugh, Chief Executive Officer of Abakkus Mutual Fund, said companies with stronger fundamentals are increasingly being rewarded by the market. He added that improving earnings and relatively attractive valuations have strengthened the investment case for the category over the long term.

The study comes at a time when investors are closely assessing market valuations following recent volatility.

While individual share price movements have varied across sectors, the report indicates that the combination of earnings growth and moderated valuations has improved the positioning of large & mid-cap funds within the broader equity mutual fund landscape.