Why Invest In Large Caps? | Wright Videos

by Sonam Srivastava, Siddharth Singh Bhaisora

Published On April 22, 2024

In this article

Are you looking for a way to invest in India's booming economy while minimising risk? What if there was a portfolio specifically designed to capture the long-term growth potential of large-cap companies? Hello dear investors, today, we'll explore the world of large-cap investing and introduce you to Wright Titan , a long term portfolio that needs to be part of everyone’s core investment strategy. Let’s look at this in today’s video.

Let's start with the basics. What are large-cap investments? Companies that have market capitalization of more than Rs. 20,000 crores are known as large caps. These well-established businesses have strong track records, and often dominate their industries. In essence these are giants of the Indian stock market - that are stable and reliable.

Largecaps - stable, steady & strong addition for all portfolios

But why are they known for stability? Largecaps have been around for decades - building solid financial foundations & witnessing multiple numerous economic cycles & overcoming many volatile times.

Largecaps additionally provide other benefits over their smaller counterparts as well. Many large-cap companies, like ITC or Hindustan Unilever, have a history of consistently paying dividends to their shareholders. This provides investors with a regular income stream on top of any potential price appreciation of their shares. On top of that, large caps act as a strong, steady element within your investments. They provide a foundation of stability, especially during times of market turbulence. This means you can confidently include some riskier investments in your portfolio, knowing the largecaps will help offset some of that volatility and smooth out your overall returns.Furthermore, largecaps can help simplify asset allocation & diversification by automatically balancing investments across different market segments. What does this mean? Well owing to the size of large-cap sector - they are usually involved in multiple markets or segments. Take for instance, Reliance - which has businesses in oil & gas, consumer, financials and many more industries. Getting the right asset allocation & diversification mix can be tricky to predict & do on your own.

Read this article to understand What Is a Large Cap Stock? How to Invest in Large Cap Stocks?

How have Largecaps performed in different cycles

What becomes evident as we look at smallcap, midcap & largecap segments is that they do not deviate significantly from their inherent return potentials over extended periods. Let’s look at their performance across different cycles:

  • 2008 financial crisis: During the 2008 crash, the entire market completely fell and there was widespread panic. But what is interesting is how the different market caps performed throughout the crisis & beyond. We saw mid caps & small caps fell with greater intensity than large caps. By late 2009, all sectors began to recover, with large caps leading the rebound.

  • Volatile markets of 2018 to 2019: During 2018-19, we saw a lot of volatility in the market. Large caps showed their strength by giving a steady & stable performance throughout the period. However, mid caps and smallcaps have shown more volatility in their returns - exhibiting a more pronounced decline to nearly 75% of the value, suggesting a heightened sensitivity to markets.

  • Covid crash:Take for example, the Covid 19 Pandemic. Despite the severe economic disruption, analysis of large-cap equity funds revealed that both direct and regular schemes provided average returns of over 60% during 2020-21.

  • 2024 performance:In 2024, a significant 67% of large-cap mutual funds managed to outperform their benchmarks, with specific examples like Quant Large Cap Fund, Baroda BNP Paribas Large Cap Fund, and Taurus Large Cap Fund delivering impressive returns in double digits. Far above their benchmark predictions.

While these investments might not deliver explosive, overnight gains, they offer the potential for steady, long-term growth - making it a critical part of your overall investment portfolio.

Explore this Sector dashboard to find the Best Large Cap Stocks to Buy in 2024.

Why is it the right time to look at largecaps?

Considering the potential returns, it's encouraging to know that large-cap shares have a strong historical track record in India. The S&P BSE Large Cap index, a reliable indicator of large-cap performance, has delivered impressive average annual returns of over 13% during the past 10 years. While past performance never guarantees future results, these figures offer a positive perspective on the potential of large-cap investments. Let’s look at why it is the right time for large caps

  1. India's economy is rapidly expanding, and large-caps are prime candidates to benefit from it. Sectors like infrastructure, banking, and technology will see significant growth over the next few years due to the Indian government’s ambitious plans.

  1. Take the infrastructure sector as an example itself. An EY report estimates that investments in India's infrastructure sector are expected to reach an incredible 1.4 trillion US dollars by 2025! Just imagine the scale of the projects that will be needed – new highways, power grids, airports, and more. This government initiative creates a massive playground for the giants of the construction and engineering sectors to expand their operations.

  1. It's worth noting that government policies like 'Make in India' are further boosting large-caps, especially those in manufacturing and infrastructure. These initiatives create a favourable environment for established businesses to thrive, while also attracting foreign investments within large-caps. And with elections around the corner, we can expect more positive growth policies in the future.

  1. Another advantage of large caps is their liquidity. Because they're heavily traded, you can easily buy or sell these stocks as needed without any major impact on your position, unlike small cap stocks which have less liquidity.

  1. Furthermore, the reputation of large-cap companies gives a sense of familiarity, making them approachable for investors seeking to diversify their holdings.

    Find the Best Large Cap Stocks to Buy Today.

    Our largecaps focused portfolio offers safety & stability, protecting you with a defensive portfolio for volatile markets.
    Get Wright Titans

    What is Wright Titan? ?And who is it made for?

    Now, let's look specifically at how we've built the Wright Titan Portfolio to capitalise on the benefits of large-cap investing. Our strategy focuses on the top 200 stocks - backtesting over decades for Indian markets & carefully selecting the right stocks using our unique factor investing methodology. We choose 20-25 stocks based on high quality & low volatility factors, along with looking at momentum as well. The idea is to pick large-cap & mid cap stocks with strong growth prospects that can fit into a portfolio mix for all investors.

    With strict sector allocation & stock allocation constraints, we have built a well diversified & low risk portfolio.

    In addition to this, our advanced risk optimization techniques along with leveraging our proprietary AI technology for advanced market forecasting and regime modelling, helping us anticipate market trends. And when those market trends become risky, we protect your investments through a systematic deallocation policy.

    Wright Titan might be a great fit for you if you seek reduced risk alongside long-term growth potential for your overall portfolio. If you are

    • Nearing retirement - add large cap stocks for the stability & steadiness that they offer.

    • New to investing - starting with a low risk, large cap focused strategy gives you a solid foundation.

    • Have high risk appetite - Allocating a lower percentage towards a large-cap portfolio can give your overall portfolio the balance that it needs, while smoothening its return profile on a year-on-year basis

    Now, an important question you might be asking is, how much of your portfolio should you dedicate to large-cap investments?

    Many financial advisors recommend allocating a significant portion to large caps depending on your individual risk tolerance and goals. This allocation could range anywhere from 50% to as high as 80% of your portfolio.

    Current sector allocation for Wright Titan

    Wright Titan is strategically balanced across a range of sectors, including Pharmaceuticals, Consumer Food, Automobile, Engineering, Airlines, and more. These are sectors that tend to do well in volatile periods. Let’s look at the thought process behind adding high quality stocks from these sectors to the Wright Titan Portfolio -

    1. Electric Equipment/Engineering: Typically, these companies are essential for economic growth and can offer stable returns due to long-term contracts and ongoing infrastructure projects.

    2. Automobile & Auto Ancillary: Automobile sectors can be cyclical, with performance tied to economic health. However, the historical returns show strong recovery and growth in the last few years and we are

    3. Pharmaceuticals: Usually a defensive allocation that is less likely to be impacted in economic downturns, it can perform well in various market conditions due to the non-discretionary nature of healthcare spending.

    4. Consumer Products: Can provide counter-cyclical balance as consumers continue to spend on personal care even in economic downturns.

    We believe this strategic diversification between defensive sectors for resilience in volatile markets and growth-oriented sectors to capture market upswings will contribute positively towards Wright Titan’s long-term stability and growth potential.

    Find the Best Large Cap Stocks to Buy Today and deep dive into the large cap sector.

    Our largecaps focused portfolio offers safety & stability, protecting you with a defensive portfolio for volatile markets.
    Get Wright Titans

    Large Cap Stocks Can Be a Core Investment Strategy

    While large-cap investing provides inherent stability, it's crucial to remember that all investments carry some degree of risk. That's why we take a proactive approach to risk management with the Wright Titan Portfolio. Our investment strategies aim to minimise potential downturns without sacrificing its stability & growth potential.

    If this approach to large-cap investing aligns with your goals, and you want the benefits of large-cap investing combined with our expertise, the Wright Titan Portfolio might be a great solution for you. We've carefully designed it to be a core investment strategy that can strike a balance between risk and reward, focusing on long-term stability and growth potential.

    At Wright Research, we're committed to simplifying investing and helping you achieve your financial goals. If you found this video helpful, please like, leave a comment with your thoughts, and don't forget to subscribe to our channel for more insights on the Indian market.

    Thank you for joining me today! Happy Investing!

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