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Indian mutual funds shift toward large and mid caps as FPIs retreat

In Q1FY27, fund houses increased stakes in 66.3% of large caps and 63.4% of mid caps, while reducing exposure in 32.6% of large caps and 36.6% of mid caps.

Reported · Written up by our desk · Fund Industry

LiveMint Markets reports that mutual funds increased holdings in most large- and mid-cap companies during Q1FY27, even as foreign portfolio investors cut stakes and retail investors reduced exposure across parts of the broader market. According to a Mint analysis of ACE Equity data covering 4,367 BSE-listed companies, fund houses raised holdings in 66.3% of large-cap companies and 63.4% of mid-cap companies in the June quarter. By contrast, they increased holdings in only 9.1% of small-cap companies, indicating a narrower bid for the smaller end of the market. The quarter also saw foreign selling, with FPIs reducing holdings in a majority of companies across both large and mid-cap segments. The analysis also found that retail investors cut exposure across much of the mid- and small-cap universe. Market performance tracked the shift, with small-caps gaining 29.1% in Q1FY27, compared with 17.2% for mid-caps and 8.9% for large-caps, despite geopolitical tensions, elevated crude oil prices, global risk aversion, and sustained foreign selling. LiveMint Markets also cited domestic liquidity and ongoing mutual fund inflows, particularly through systematic investment plans, as a key factor behind the larger-cap preference.

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