From flexicap to smallcap: Tracking the funds that held their ground

Each phase tested a different aspect of fund management — protecting capital during drawdowns, participating in rallies, and staying consistent as macroeconomic (macro) and liquidity conditions shifted.

These shifts led to wide divergence in outcomes across fund categories and strategies. Funds that looked strong in one phase often faltered in another, while only a smaller set delivered across cycles.

With volatility returning in recent months and valuations adjusting in parts of the market, this is a good moment to assess what worked for equity schemes in the previous cycles. Business Standard examines fund performance over the past five years to understand what drove outperformance — downside protection, upside capture, or consistency across phases.

Reading the tide

The past five years were defined by distinct phases. The first was the correction between October 2021 and June 2022, as global liquidity tightened and inflation concerns triggered equity derating. Rising US bond yields and the Russia–Ukraine war pushed commodity prices higher, while central banks, including the Reserve Bank of India, shifted towards monetary tightening.

This was followed by a strong rally from June 2022 to September 2024, supported by domestic liquidity, improving corporate earnings, and relative macro stability. The upmove was broad-based, with mid and smallcap stocks seeing stronger participation.

Markets corrected again between September 2024 and March 2025 as valuations came under pressure amid weaker earnings and sustained foreign outflows. Stretched valuations, particularly in the broader market, led to sharper drawdowns in mid and smallcap stocks.

A recovery phase between March 2025 and January 2026 saw markets rebound after the earlier correction, supported largely by domestic flows. However, gains remained uneven, capped by global headwinds and continued foreign portfolio investor outflows.

More recently, between January and April 2026, equities faced another correction triggered by geopolitical tensions, a spike in crude oil prices, and record foreign investor selling.

The analysis covers top-performing schemes across six equity fund categories, selected using a combination of three-year and five-year returns along with the Sortino ratio, which captures risk-adjusted performance by focusing on downside volatility.

These schemes were then evaluated across five distinct market phases — three corrections and two upcycles — to assess how they behaved in different environments.

Flexicap

Top schemes in this category have delivered three-year compound annual growth rate (CAGRs) of 16-21 per cent, versus the Nifty 500's 14.3 per cent, with a notable edge over the five-year period as well. HDFC Flexi Cap and Quant Flexi Cap stand out, with five-year CAGR of 19.3 per cent and 18.9 per cent, respectively.

The downside analysis reveals meaningful divergence. In D1, HDFC Flexi Cap (-10.4 per cent) was the strongest performer, losing significantly less than the benchmark (-18.2 per cent). On the upside, Bank of India Flexi Cap emerged as one of the

strongest performers, gaining 41.9 per cent in U1 and 23.3 per cent in U2.

The category does not have a single winning formula. HDFC Flexi Cap delivered through downside protection, while Bank of India and JM Flexi Cap rode aggressive upside.

Focused

Focused funds, by mandate, hold concentrated portfolios of up to 30 stocks — a structure that amplifies both conviction and volatility. The category has delivered strong returns, with ICICI Prudential Focused Fund and Invesco India Focused Fund clocking three-year CAGRs above 20 per cent.

Phase-wise, HDFC Focused Fund was exceptionally resilient during downturns, falling 6.8 per cent in D1 and 12 per cent in D2, compared to benchmark declines of 18.2 per cent and 18.7 per cent, respectively. On the upside, ICICI Prudential Focused Fund led, capturing 39.3 per cent in U1 and 28.1 per cent in U2.

The category’s top performers are defined by their ability to limit drawdowns first and participate in rallies next. HDFC Focused Fund stands out for balancing both, while ICICI Prudential Focused Fund leans more towards upside capture.

Large & midcap

The large & mid cap category is required to have at least 35 per cent exposure each to large and mid caps. This structural balance has translated into strong returns, with Motilal Oswal Large and Midcap (CAGR of 24.2 per cent), Invesco India Large & Mid Cap (22.6 per cent), and Bandhan Large & Mid Cap (22.2 per cent) outperforming the Nifty LargeMidcap 250’s 17.2 per cent CAGR over three years.

Downside performance reflects the category’s dual nature. During D2, the benchmark fell 18.8 per cent, while ICICI Prudential Large & Mid Cap (-14.8 per cent) offered relatively better protection. On the upside, Motilal Oswal Large and Midcap topped, gaining 49.4 per cent in U1 and 26 per cent in U2. Performance in this category is distinctly bifurcated — some schemes are driven by aggressive upside capture, while others derive strength from downside resilience.

Largecap

Large-cap funds have generated consistent, albeit moderate, returns in recent years. Over a

three-year period, most leading schemes have posted CAGRs of around 15-16 per cent, outpacing the Nifty 100’s 12 per cent CAGR.

During the D1 correction, the benchmark declined 17.6 per cent, while ICICI Prudential Large Cap (-13.3 per cent) and Nippon India Large Cap

(-14.3 per cent) fell less than the index. On the upside, Nippon India Large Cap ranked first,

delivering 37.3 per cent CAGR in U1, above the benchmark.

Performance has been shaped more by downside protection than upside participation. With limited dispersion in gains during rallies, schemes that fell less during correction phases ended up delivering stronger outcomes over the full cycle.

Midcap

Mid-cap funds outperformed their benchmark over the past three years. The Nifty Midcap 150 delivered a CAGR of 22.2 per cent over three years. Top active funds went a step further, with Invesco India Mid Cap, ICICI Prudential Midcap, and Nippon India Growth Mid Cap all clocking three-year CAGRs above 25 per cent.

In the D1 phase, the benchmark fell 20 per cent, and most funds moved in line — HDFC Mid Cap (-15.7 per cent) and ICICI Prudential Midcap (-16.4 per cent) declined less than the index. On the upside, Invesco India Mid Cap ranked first, delivering 44.9 per cent CAGR in U1 and 29.8 per cent in U2.

Funds have delivered varied outcomes across market phases, but a few schemes, such as HDFC and Invesco, have stood out by combining relatively lower drawdowns with meaningful participation in rallies.

Smallcap

Small-cap funds sit at the high-conviction end of the equity spectrum, and their return profile reflects that. Over the past three years, top schemes have delivered 19-29 per cent CAGR, led by Bandhan Small Cap Fund at 28.9 per cent.

The downside is more volatile. During D1, the benchmark fell 21.1 per cent. Nippon India Small Cap (-12.6 per cent) and DSP Small Cap (-13.4 per cent) declined less than the index. On the upside, the category delivered strong gains. Bandhan Small Cap ranked first, delivering 53 per cent CAGR in U1.

Funds in this category have not consistently contained drawdowns, but schemes such as Bandhan and Quant have offset this through stronger participation in rallies.