59% of large & mid cap stocks are down over 20% from their peaks. Is this a buying opportunity?

A sharp correction in Indian equities has left a majority of large- and mid-cap stocks trading well below their record highs. While the volatility has rattled investors, an internal study by Abakkus Mutual Fund suggests the current phase may offer an attractive entry point for long-term investors as earnings continue to outpace stock price growth.

According to the study, around 59% of stocks in the Large & Mid Cap universe are currently trading more than 20% below their all-time highs, even as corporate earnings remain healthy. The fund house believes improving fundamentals and more reasonable valuations could support a recovery in stock prices over time.

The study also notes that large- and mid-cap indices are trading below their historical average valuations, creating opportunities for investors looking to accumulate quality businesses at relatively attractive prices.

Earnings vs stock prices

One of the report's key observations is the widening gap between earnings growth and market performance.

Over the last two years, Large & Mid Cap companies delivered earnings growth of around 14-16%, while stock prices rose by only 1-2%, indicating that valuations have moderated despite improving corporate profitability. According to the study, this divergence could eventually result in "mean reversion," where stock prices gradually catch up with underlying earnings.

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Commenting on the findings, Vaibhav Chugh, CEO, Abakkus Mutual Fund, said: "Markets are increasingly rewarding businesses with strong fundamentals rather than broad market participation. Large & Mid Cap Funds offer investors the opportunity to combine the resilience of established market leaders with the growth potential of emerging companies. With valuations becoming more reasonable and earnings outlook improving, we believe the category offers an attractive avenue for long-term wealth creation through disciplined investing."

Fund performance

Recent mutual fund performance data also suggests that returns have varied widely across schemes, highlighting the importance of selecting quality funds rather than simply investing across the category.

Among mid-cap funds, Motilal Oswal Midcap Fund delivered the strongest one-month return of 6.49%, while Mirae Asset Midcap Fund returned 5.71% and TRUSTMF Mid Cap Fund gained 5.73% during the same period.

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Looking at longer-term performance, Motilal Oswal Midcap Fund has generated a 22.94% five-year return, Invesco India Mid Cap Fund has delivered 21.60%, while HDFC Mid Cap Fund has posted 20.56% over five years. HSBC Midcap Fund stands out with an impressive 26.56% three-year return, indicating that active stock selection has played a significant role in creating wealth.

The large-cap category tells a similar story. Most schemes have reported positive one-month returns following the market recovery, although six-month returns remain negative for several funds because of the earlier correction. Over longer periods, however, funds such as Nippon India Large Cap Fund, ICICI Prudential Large Cap Fund, HDFC Large Cap Fund and Invesco India Largecap Fund have consistently delivered double-digit three-year and five-year returns, demonstrating the benefits of staying invested through market cycles. 

Best Performing Mid Cap Funds

Fund	1-Year Return (%)	3-Year Return (%)	5-Year Return (%)
ICICI Prudential Midcap Fund	11.61	23.96	18.59
Invesco India Mid Cap Fund	11.60	26.89	21.60
Motilal Oswal Midcap Fund	-5.55	19.38	22.94
HDFC Mid Cap Fund	5.28	20.48	20.56
Nippon India Growth Mid Cap Fund	8.12	22.61	20.79

Source: Value Research (10 July 2026) 

Best Performing Large Cap Funds

Fund	1-Year Return (%)	3-Year Return (%)	5-Year Return (%)
Invesco India Largecap Fund	1.71	14.96	14.10
ICICI Prudential Large Cap Fund	-2.80	13.37	13.94
Nippon India Large Cap Fund	-1.70	13.68	15.98
HDFC Large Cap Fund	-1.44	11.56	13.31
Mirae Asset Large Cap Fund	-1.54	10.58	10.32

Source: Value Research (10 July 2026)

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Why Abakkus says this could be a buying opportunity

Indicator	What It Means for Investors
59% of Large & Mid Cap stocks are over 20% below their peaks	Valuations have become more attractive after the correction.
Earnings growth of 14-16% vs price growth of just 1-2%	Corporate fundamentals are stronger than recent stock price performance.
Indices below historical average valuations	Investors may be buying quality companies at relatively lower valuations.
79% of listed market cap comes from large & mid caps	The category offers broad exposure to India's equity market.
Mandatory 35% allocation each to large and mid caps	Provides a blend of stability and growth.

Active management

The Abakkus study points out that 103 companies—representing nearly 48% of the Large & Mid Cap universe—have generated more than 20% CAGR over the past five years, highlighting the significant variation in stock performance. As a result, the study argues that active fund management and disciplined stock selection are likely to play an increasingly important role in investor returns.

Large & Mid Cap Funds are required to invest at least 35% each in large-cap and mid-cap stocks, providing exposure to both established market leaders and fast-growing businesses. Together, these companies account for nearly 79% of India's listed market capitalisation, making the category a broad representation of India's equity market. 

While no correction guarantees future gains, the combination of lower valuations, resilient earnings growth and improving market fundamentals suggests the current environment may offer long-term investors an opportunity to build exposure gradually. Experts, however, caution that investors should adopt a disciplined approach, remain diversified and align investments with their financial goals and risk appetite rather than trying to time short-term market movements.

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