Large & Mid Cap Funds Emerge as an Attractive Investment Avenue Amid Improving Market Fundamentals: An Abakkus Mutual Fund study
The near-term gap between earnings growth and stock prices has emerged in the market. Several Large and mid- cap indices are currently trading below their historical average valuations. Earnings growth within the broader mid-cap segment is showing signs of improvement. A near-term disconnect between earnings growth and stock prices has emerged in parts of the market. As earnings continue to improve, strong fundamentals and attractive valuations may support mean reversion and potential catch-up in select stock prices.
As Indian equity markets transition into an earnings-driven phase, Large & Mid Cap Funds are emerging as an attractive investment category, offering investors a balanced combination of potential stability along with growth opportunities and diversification, according to an internal study by Abakkus Mutual Fund.
The study highlights that large-cap and mid-cap companies together account for nearly 79% of India's total listed market capitalisation (source: AMFI Market Capitalisation December 2025), making the category an effective way for investors to participate in the country's long-term growth story. While large-cap companies provide resilience through established business models, strong balance sheets and market leadership, mid-cap companies offer the potential to participate in the next generation of India's high-growth businesses.
Large & Mid Cap Funds are mandated to invest a minimum of 35% each in large-cap and mid-cap stocks, enabling investors to benefit from the stability of established businesses while participating in the growth potential of emerging companies.
Few Key points to note-
Stocks falling from their All-Time High
The current market environment strengthens the investment case for the category. Following the recent market correction, around 59% of stocks in the Large & Mid Cap universe are trading more than 20% below their all-time highs, creating attractive entry point for long term investments.
Performance Varies Across Large Cap And Mid Cap Stocks
The study further highlights that stock selection will be the key differentiator in the coming years. Nearly 103 companies, representing around 48% of the Large & Mid Cap universe, have delivered more than 20% CAGR over the last five years, highlighting the significant variation in performance within the universe and reinforcing the importance of active fund management.
Earnings Outpace Prices - Mean Reversion Catch-Up?
The study further highlights that earnings growth has significantly outpaced price appreciation across market segments in recent years, creating a near-term gap between fundamentals and valuations.
Over the last two years, while Large & Mid Cap companies delivered earnings growth of 14–16%, price growth remained subdued at just 1–2%. A similar trend is visible in Large Caps and Mid Caps, where earnings growth has consistently exceeded stock price performance.
This divergence suggests potential scope for mean reversion, with stock prices likely to catch up with underlying earnings over time, reinforcing the importance of active fund management and disciplined stock selection.
Commenting on the findings, Vaibhav Chugh, CEO, Abakkus Mutual Fund, said: "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."
At Abakkus Mutual Fund, all investment decisions are guided by the proprietary MEETS framework, which evaluates businesses based on Management quality, Earnings strength, Events and industry trends, Timing of investments at reasonable valuations and Structural growth opportunities. This disciplined, research-driven investment philosophy seeks to identify high-quality businesses capable of creating sustainable long-term wealth across market cycles.
With India’s long-term growth fundamentals intact, Large & Mid Cap Funds are well positioned to offer a balanced opportunity to participate in the country’s next phase of economic growth.
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