Jefferies: Mutual funds trim small-cap exposure by 150 bps in H2 2025, shift toward large caps amid valuation caution

Jefferies reported that Indian mutual funds reduced their exposure to small-cap stocks by approximately 150 basis points in the second half of 2025, citing high valuations and volatility risks. The shift marks a cautious stance as fund managers reallocated assets toward large-cap companies with stronger balance sheets and predictable earnings. Additionally, several mutual funds have raised their average cash holdings to mitigate short-term market fluctuations. Analysts suggest this rebalancing aims to preserve portfolio stability while positioning funds for sustained performance in a potentially overvalued small-cap segment.