New Delhi, Aug. 11 -- Investors are gradually turning sour on large-cap stocks as they favour small- and mid-cap shares in search of returns above the broader market, or alpha.

Large-cap funds saw net outflows of Rs.1,321 crore in July, the first monthly outflow in nearly three years, according to data from the Association of Mutual Funds of India (Amfi). By contrast, investors pumped Rs.7,767 crore into small-cap funds during the month, while mid-cap funds saw inflows of Rs.6,192 crore.

Investor preference for small- and mid-cap stocks over large-caps is also evident in the fund flow data. Compared with the 12-month average monthly flow, large-cap funds saw a 164% decline in net flows in July, indicating a shift to net outflows. In con...