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The Rally of Large Cap Stocks Amidst COVID 19

Wall St. Street Sign with American Flags

The capital market after a long bullish period has finally succumbed to the inevitable bearish slump. Panic selling has further worsened the situation by causing the market to dip further. Trillions of dollars have been wiped off the market in a matter of months. This is arguably the worst economic disaster since The Great Depression of 1930’s.

So if we are to follow the advice of investors like Baron Rothschild and Warren Buffet, it is a simple sell.

Buy when every one is selling!

Baron Rothschild's Quote - "Buy when there's blood in the streets, even if the blood is your own"

Thus the question arises, what will you buy in this heavily unstable and volatile mess of a capital market?

Mr. Neelesh Surana of Mirae Asset Managements made headlines last month on his decision to bet on large cap with ₹ 36,000 Crore under his management.

We continue to prefer large-caps, and would advise investors to allocate about 70 per cent towards large or multi-caps funds. – Surana

A large-cap stock is one of a company which has a market capitalisation of $ 10 Billion or more. These options are uniquely adventitious  due to their stability and are often regarded as more mature investments.

Let’s explore why large-cap investments are emerging as the choice among top investors –

Stability

Owing to the sizeable nature of these companies and their established reputation with customers, these companies are far less likely to go bust. These companies are able to handle excessive market volatility and still stay in business. That simply isn’t something small-cap or even mid-caps have been able to do.

Metrics seem to back this claim up as well. Case in hand being Axis Bluechip Fund which netted 26.72% return in an years time despite the severe market slowdowns.

Being the market leaders in their respective industries, large-caps are expected to ride out the waves owing to it’s extreme stability.

Dividend Payouts

Blue chip stocks usually have little capital appreciations. Thus, to compensate the shareholders of these companies there exist dividend payouts. These are contractually bound obligations. So even in times like now where companies are suffering losses there will be no cutbacks with dividend payouts.

Without getting into much details about the types of stock options an investor can opt for and the perks associated with them, but not all large-cap stocks have the options of dividend payouts. Do clarify with your broker before choosing.

Long Term Options

Yes, one cannot expect short term returns from such safe and secure investments. However, numerous researches and top investors swear by large cap investment options. Especially because of the high rate of return accumulated by compounding the dividend payouts. Mirae Asset Large Cap netted over 16% over the same duration as other mid and small cap stocks with figures like 11% and 10% respectively.

Moreover, large-cap companies are easier to find resources on and conduct research. These companies have been in existence for years and are more often than not the largest market share holders in their niches.

This unique blend of stability, returns, and accessibility renders a safe blanket to invest in, despite these times of uncertainties. Moreover, with negative interest rates piling up all over the world. Its only a matter of time before investing is a safer and more profitable option than savings.

There is however, significant risk in any investment and I strongly urge you to conduct your own research and invest in accordance with your risk tolerance.

About the author

Sayon Bhattacharya

A student, Quant Dev, Finance & Capital Market Enthusiast, and now a blogger on The Indian Wire living in the Financial Capital of India, Mumbai. Sayon is a multi faceted individual with limitless enthusiasm to enlighten the uninitiated in the realm of Finance and Business. He enjoys sharing his knowledge and understanding of current and core happenings in these domains with startling simplicity and ease of understanding. Stay tuned to know more about the latest happenings and be up to date with the market.

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