Edelweiss CIO urges flexicap pivot as Indian largecaps lose share

Edelweiss CIO Trideep Bhattacharya is advising investors to abandon pure largecap funds in favour of flexicap and midcap strategies, arguing that India's traditional corporate giants are suffering structural market share losses to nimbler challengers.

The recommendation reflects a broader shift in Indian consumption patterns, where established blue-chip business models are being disrupted by smaller, unlisted, or mid-sized competitors. Rather than abandoning largecaps entirely, Bhattacharya suggests flexicap funds—which typically allocate 55% to 75% to largecaps and the remainder to mid and small caps—serve as an optimal replacement. This structure allows investors to maintain exposure to largecap winners in sectors like consumption and jewellery while capturing growth from emerging business models.

Midcaps remain his preferred vehicle for the earnings upgrade story that typically attracts foreign capital to emerging markets. The midcap segment offers concentrated exposure to structurally underpenetrated sectors such as hospitals, capital markets, defence, and industrial exports. However, Bhattacharya cautioned that he is highly selective on smallcaps, anticipating potential earnings downgrades in the June quarter that could hit the smallest companies hardest.

Sector bets favour banks over IT

At the sector level, Edelweiss is meaningfully overweight financials, with a specific focus on private sector banks. Bhattacharya noted that Indian credit growth bottomed out between September and December of last year at 8% to 10%. It has since rebounded to 15% to 16%, and he projects it will reach 18% to 20% by the second half of this year. He views private banks as the primary beneficiaries of this demand trend, citing their reasonable valuations.

The asset manager is taking a decidedly cautious stance on India's IT services sector, currently running an underweight position. While the sector has historically navigated technological transitions from Y2K to cloud computing, Bhattacharya views the current artificial intelligence shift as the largest yet. Because this transition will likely take two to four quarters to play out, Edelweiss is waiting for clarity before buying the recent sector dip.

Energy security over direct AI exposure

For investors seeking exposure to the artificial intelligence theme, Bhattacharya offered a sobering assessment. He characterises India as an "anti-AI trade," noting that domestic companies are largely users of the technology rather than primary beneficiaries. While a few data centre players are in Edelweiss portfolios, the broader AI wave remains in a hardware and semiconductor stage that bypasses India.

Instead, Bhattacharya is directing capital toward an energy security trade. Because 70% to 80% of India's energy imports transit the vulnerable Strait of Hormuz, the government is expected to spend heavily over the next four to five years to diversify supply. The resulting capital expenditure in power generation and renewables presents a concrete investment opportunity, particularly for companies supplying the underlying infrastructure.