Given the current economic uncertainty and sharp volatility in the market, retail investors should restrict their focus to large-cap stocks with established fundamentals.

Nimesh Shah, Managing Director, ICICI Prudential AMC, told BusinessLine that large-cap stocks are generally the leaders in their respective sectors with steady cash flow to weather any eventuality in business.

“These companies usually have large surpluses and pay regular dividends, which is an added attraction,” he said. However, he said it would become an expensive affair for retail investors to invest in individual large-cap stocks in different sectors; therefore they should give this job to professionally-managed mutual funds.

According to SEBI’s recent recategorisation of mutual fund schemes, large-cap funds must invest a minimum of 80 per cent of their assets in equity and equity-related instruments of large-cap companies which are defined as top 100 stocks in terms of market capitalisation in equity market.

Large-cap companies are run by an experienced management with enough experience to tackle different business cycles and they have sufficient data in the public domain for performance evaluation.

Some of the large-cap funds have delivered better returns than their benchmark indices — Nifty 50 TRI (total return index) and S&P BSE Sensex TRI — across market cycles. They have not only outperformed indices in bull phases (March 2016-December 2017) led by global liquidity and domestic reforms, but have also reduced losses during the Chinese slowdown (March 2015 and February 2016).

For instance, he said ₹10,000 invested in a large-cap fund since April 1, 2000 would have grown to ₹1,18,707, compared to ₹99,436 in Nifty 50 TRI and ₹1,04,088 in the S&P BSE Sensex TRI.

As of August-end, the CAGR of the category during the period works out to 14.5 per cent against 13.5 per cent of the benchmark indices.

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