Fund managers raise largecap exposure, stay cautious on sector bets: Morningstar

Himanshu Srivastava, Principal-Research at Morningstar Investment Research India believes across diversified categories like flexi-cap and focused funds, largecap exposure has increased. However, fund managers are not abandoning mid- and smallcaps completely.Srivastava said, “The markets were largely driven by mid- and smallcaps for a long period of time. This time, largecaps have done well and showed their importance.”

Largecaps now form roughly half of diversified portfolios, acting as stability anchors. The remaining allocation continues to be spread across mid- and small-caps to capture alpha opportunities. This suggests a calibrated strategy: not overly aggressive, but not excessively defensive either.
Srivastava highlighted one notable trend is that fund managers are avoiding big sectoral bets. Instead of taking sharp overweight positions in cyclical or high-risk sectors, they are keeping portfolios close to benchmark allocations.Read Here | Gold rally prompts profit-taking; AI fears overdone, Indian IT a buy: Matt Orton

Deviation from benchmark weights is typically within a reasonable band of 2–4%. Rather than making bold sector calls, managers are expressing conviction through selective stock picking.

Srivastava highlighted that active fund managers also have the responsibility of managing downside risk:

“At a time when there is no need to take higher risk, where the risk could be high, I think being slightly defensive is not a bad idea.”

This reflects a broader shift toward preserving capital in uncertain times rather than chasing short-term returns.Read Here | 2026 may reward stock pickers; autos, financials at fair valuations: Kenneth Andrade

On the IT sector has seen sharp corrections, and fund managers are clearly divided.

Some managers are underweight IT due to global risks and demand uncertainty. Others, especially valuation-focused managers, see the correction as a buying opportunity.

For example: Nippon India Multi Cap Fund and Kotak Large Cap Fund are taking a calibrated approach with no aggressive IT overweight.

Mirae Asset Large Cap Fund has maintained a relatively higher exposure, seeing better valuations after the correction.

This divergence reflects differences in investment style—some managers are avoiding global risk, while others are betting on long-term digital growth.

For the entire discussion, watch the accompanying video

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