The flexi cap category has emerged as a preferred vehicle for investors seeking a balance between stability and growth. By dynamically shifting between large-, mid-, and small-cap stocks, these funds aim to capture opportunities across the market.
To understand the strategy of one of India’s largest flexi cap funds, Mint spoke to Anup Upadhyay, fund manager at SBI Mutual Fund, about his outlook for the market, sectoral bets, and structural changes in the SBI Flexi Cap Fund.
Here are some edited excerpts from the interview.
Who is the SBI Flexi Cap Fund suitable for?
The flexi cap category is a staple for all investors. Most investors are neither very aggressive nor very conservative; they want to benefit from wealth creation in equities. They might not have views on how they want to play the small or mid caps, and they might not have the time for this, so that is what the flexi cap fund solves. Everyone’s core portfolio should have some flexi cap in it. They can add more funds based on their risk appetite.
What are your current allocations to mid and small caps?
Currently, about 70% of the portfolio is in large caps, with around 25% in small and mid caps. A year ago, 55% of the portfolio was in large caps. We increased this because the margin of safety is currently better in large caps compared to small and mid caps. This is a tactical call, and we are looking at it stock by stock.
Where do you see major opportunities in the market right now?
Many opportunities in the equity market don’t need calculus or genius; they are right there in front of us, and we need to be patient to ride them. There will be times when valuations surpass reality, and we need to step down and get back in when valuations have cooled.
As a flexi cap fund, we are overweight on financials, auto, metals, and cement.
If we take a step back and think about how companies will grow, it is clear that rising household leverage will be a defining factor. Over long periods, consumption is driven by this. The younger generation is more comfortable with debt; they are willing to borrow more to consume. We are playing this cycle through NBFCs and banks that have good management teams capable of handling credit crises.
You also have an interest in the insurance space. Why is that?
Insurance is a massive opportunity as India remains significantly under-insured. There is a lot of room for growth as those with insurance seek greater cover and the uninsured buy their first policies. In the flexi cap context, lending and insurance together are playing out very well as a combined theme.
What’s your stance on the auto sector?
We are overweight on autos. Historically, whenever the government has given a tax cut to the auto sector, we have seen a good amount of acceleration for the following two years. The only risk to this story is a very sharp metal inflation, which we are keeping a close eye on.
What are the major risks or trends you see for equity markets, especially in 2026?
There is a larger wave of de-dollarisation so this might means that we will continue to see real assets doing well. There are signs of other commodities such as copper performing well. If this trend continues, there might be a broad-based rally in hard metals. We are overweight on certain metals, partly due to company-specific narratives regarding capacity expansion in steel companies.
The cement space has been in a long slump. There was a great deal of capacity building until 2016. Despite this, they have not been able to increase prices or get a decent return on capital, and the sector has been consolidating. We see this continuing for the next five years. We are selectively playing this by looking for companies where stock prices are in our favour and close to the cost of replacement of assets.
How does the fund’s relatively low assets under management (AUM) compared to the top funds in the category help your strategy?
A smaller fund size gives us the opportunity to be more nimble in asset allocation and provides a lower threshold for buying into stocks. We can invest in relatively smaller companies and move faster when it comes to entering or exiting positions.
What major rebalancing has been done over the past couple of years?
There was a review and rethink from management following a period of underperformance. We improved two key areas. First, we moved away from an exclusively analyst-managed model. While we were proud of that structure, the increase in the research team made it cumbersome to coordinate and move quickly.
Second, our previous sector-neutral stance became a problem as the portfolio grew. We used to stay very close to benchmark weights for sectors while taking active stock calls. Now, a more traditional fund management team is in place. While we listen to research, we take calls based on instinct and take active sector weights. We saw that the best stocks did not have enough allocation so we also consolidated the portfolio from 106 stocks down to about 60.
What are your core stock-picking strategies?
Our framework is to look for stocks in three categories. The first are ‘champion’ stocks, which are growing much faster than the broader economy. They are earning a return on capital that is much superior to the average company in the listed universe. And they also operate in a large market. They have much better earnings growth potential compared to other companies.
The second is ‘change of margin’ companies where a positive development, like a change in management, process or product, could increase their market share or margins. The last category is ‘cheap’ stocks, where we look at balance sheets to find companies that are trading close to the liquidation value of their assets.