Mihir Vora
Year 2025 is marking a shift toward more volatility and a potential slowdown for both Indian and global markets. After the past few years of strong recovery from the pandemic-induced downturns, the markets are now facing more challenges. The year looks normal, with lower growth prospects for most of the countries, including India. Accordingly, the return expectations from equity funds need to be lowered as well.
Domestic economy is showing signs of slowdown, and RBI has cut rates to support the growth, as inflation seems to be coming down. Global liquidity is getting tighter due to inflation worries, and FPIs have been pulling some funds out of emerging markets. Indian Rupee has come under pressure due to FPI outflows, and it could boost Indian exports in the future. The Trump administration is trying to revive the US economy and create jobs, for which it is renegotiating the terms of trade with its major trading partners. Uncertainty has increased, which is leading to a correction in equity prices.
As we look ahead to 2025, India’s economic growth is expected to regain momentum, supported by a capex cycle and easing macroeconomic pressures. The steps in the Budget to boost consumption and the expected rate cuts by RBI should also support consumer and investor sentiment.
Flexi Cap Funds: A dynamic shield against market volatility
Flexi cap funds are today the single largest mutual fund category in terms of corpus.
Unlike other mutual fund equity categories, Flexi Cap Funds do not confine themselves to specific market capitalizations or sectors/themes. Instead, they invest across a spectrum of market capitalizations—large-cap, mid-cap, and small-cap stocks—offering investors broad exposure to different segments of the economy. This broad diversification enhances the resilience of Flexi Cap Funds, particularly in times of market turbulence.
The defining feature of Flexi Cap Funds lies in their ability to adapt to ever-changing market conditions. Their flexibility allows these funds to act as a natural shield against the effects of volatility. As the performance of companies varies based on their size and market environment, Flexi Cap Funds’ diversified portfolio helps mitigate risks associated with market swings. For example, during periods of heightened market uncertainty or downturns, fund managers may reduce exposure to small-cap stocks, which tend to be more susceptible to volatility, and instead increase investments in safer, more established large-cap stocks. This tactical asset allocation smoothens out the highs and lows of the market, providing a buffer for investors.
What truly sets Flexi Cap Funds apart from other equity funds is their ability to rotate between various investment strategies. When the market is recovering from a downturn, these funds can allocate more towards growth stocks, which tend to deliver higher returns during periods of expansion. Conversely, when market conditions are uncertain or volatile, managers may pivot toward value or quality stocks, which offer more stability and protection against market declines. The ability to adjust the portfolio in line with shifting market conditions gives Flexi Cap Funds a significant edge in both protecting against downside risks and positioning for long-term growth.
Flexi Cap Funds are particularly well-suited for long-term investors who wish to ride out the fluctuations of the market. The flexibility these funds offer is key to their performance, as they do not adhere to a fixed mandate. This adaptability allows Flexi Cap Funds to remain aligned with evolving economic trends, enabling them to capture growth opportunities over time
Special mention should be made for flexi cap funds, which are relatively smaller in size, as they can quickly adjust their positions in line with market outlook without any impact cost.
Author is Chief Investment Officer, TRUST AMC
