Three large-cap funds for your 2026 watchlist – Views on news from Equitymaster

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I’m Divya Grover, here to help you make informed investment decisions in mutual funds.

During uncertain and volatile market conditions, large-cap stocks stand out for their relative stability compared to mid-caps and small-caps.

The large-cap universe consists of companies with well-established businesses and strong balance sheets, making them less vulnerable to market risks.

With a price-to-earnings ratio of around 22, the Nifty 50 index’s valuation is trading near its long-term average. This makes the segment reasonably priced with a decent margin of safety.

In contrast, certain segments of the midcap and smallcap segments are trading well above their historical averages.

So amid current headwinds such as trade tensions, geopolitical tensions and foreign capital outflows, large caps can potentially offer better risk-return measures.

In this video, we have shortlisted three large-cap funds for your watchlist in 2026, based on a combined quantitative score that evaluates rolling returns and risk ratios.

#1 Nippon India Large Cap Fund

Launched in August 2007, Nippon India Large Cap Fund focuses on long-term growth by identifying stocks with high growth potential using a ‘Growth at a Reasonable Price’ strategy.

The fund looks for rapid growth opportunities within large caps and across sectors/industries, but avoids chasing market trends.

When selecting stocks, the fund focuses on criteria such as good quality of management, a good track record, growth potential and the economic scenario.

It emphasizes companies that are leaders or potential leaders, with established business models, sustainable and growing free cash flows and high RoE.

The strategy has allowed the company to excel at identifying long-term winners and enabling it to deliver superior returns over the long term.

Over the last five years, the Nippon India Large Cap Fund has returned at a CAGR of 24.5%, better than the 19% CAGR of the benchmark Nifty 100 – TRI.

The fund has recorded reasonable volatility (standard deviation). Furthermore, its risk-adjusted returns (represented by the Sharpe and Sortino ratios) are currently among the best in the category.

As of September 2025, the fund has assets under management worth Rs 465 billion (billion), the third largest in the category.

The fund typically holds a portfolio of 60-70 stocks. According to the September 2025 portfolio, the fund owned 67 stocks. It invested 85.1% in large caps, 9.7% in midcaps and 3.7% in small caps.

The top 10 stocks accounted for nearly 43.2% of assets, with higher allocation to HDFC Bank, Reliance Industries\, ICICI Bank, etc.

The fund’s top 3 sectors are banks, automotive and supply companies and infotech.

The company’s core allocation to fundamentally strong large-cap stocks and strategic investments in mid-cap and small-cap stocks allows it to generate reasonable alpha over the long term.

#2 DSP Large Cap Fund

Launched in March 2003, DSP Large Cap Fund is a benchmark agnostic fund in the Large Cap Funds category.

The fund takes a top-down approach to analyze different sectors in the economy and the investment opportunities within the preferred sectors. It conducts internal research to seek both growth and value in the stock selection process.

The fund’s past performance has been ordinary and failed to make a good impression among its peers.

Notably, the fund has seen regular changes in the fund management team over the past decade, which has likely impacted performance. The fund has benefited from the recent market rally, outperforming the benchmark and many of its peers.

DSP Large Cap Fund takes concentrated investments in a number of high-conviction shares and sectors. As a result, the fund has managed to realize the full potential of its investments, building a remarkable lead over the benchmark and the category average.

Over the last 5 years, the DSP Large Cap Fund has generated returns of a CAGR of 19.3% compared to 19% in the benchmark Nifty 100 – TRI.

The fund’s volatility is the lowest among its peers, while it ranks high in risk-adjusted returns compared to the benchmark and most of its peers.

It typically manages a focused portfolio, limiting the number of stocks to around 30. Currently, it has 30 stocks in its portfolio, of which 81.5% are in large caps, 3% in midcaps and 6.1% in small caps.

The top 10 stocks comprise 56.7% of the fund’s portfolio, with notable exposure to HDFC Bank, ICICI Bank, ITC, etc.

The top sectors are banks, automotive and supply companies and healthcare.

The fund avoids chasing momentum and holds most stocks with a long-term view. The fund also limits exposure to midcaps and smallcaps and manages its cash levels strategically.

This strategy has enabled the fund to limit volatility better than many of its peers and to score highly on risk-return parameters.

#3 ICICI Pru Large Cap Fund

Launched in May 2008, ICICI Pru Large Cap Fund boasts a reliable long-term track record.

The fund follows a bottom-up approach to stock selection, shortlisting companies with a proven track record, quality management and good growth potential. The aim is to identify high-quality large-cap stocks in which the fund manager has high conviction.

The primary focus of the ICICI Pru Large Cap Fund is on identifying stocks with high growth potential that are reasonably priced, allowing the fund to effectively balance risk and return.

Over the years, the fund has demonstrated its ability to limit downside risk during market turbulence and deliver superior returns when market conditions improve.

Over the last five years, the ICICI Pru Large Cap Fund’s NAV grew at a CAGR of 22.4%, higher than the 19% CAGR of the benchmark Nifty 100 – TRI index.

The fund’s volatility is among the lowest in the category and its risk-adjusted returns are among the best in the category.

As per the September 2025 portfolio, this is the largest fund in the large-cap fund category, with assets under management of Rs 730 billion.

The fund usually has about 60 to 70 shares in its portfolio. According to the September 2025 portfolio, it owned 63 stocks. The allocation was 81.6% in large caps, 8.5% in mid caps and only 0.1% in small caps.

The top 10 stocks constitute 53.2% of the portfolio and include names like HDFC Bank, ICICI Bank and Reliance Industries.

The top sectors are banks, automotive and supply companies and crude oil.

Backed by its compelling stock selection, diversified portfolio and a focus on risk management, the ICICI Pru Large Cap Fund has effectively navigated market volatility.

This brings us to the end of the video

Large-cap funds invest in renowned companies with the aim of generating stable long-term returns.

While they may not generate exceptionally high returns, they tend to offer better downside protection than mid-cap and small-cap funds, making them suitable for investors looking for stability and steady capital growth over the long term.

That said, investments in large-cap funds are not without risk; They are also sensitive to market fluctuations.

So, when investing in large cap funds, you should have a long-term horizon of at least 3-5 years.

Please note that this video is for informational purposes and does not constitute investment advice or a recommendation to buy/hold/sell any fund.

The returns mentioned herein are in no way a guarantee or promise of future returns.

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