Welcome to  PersonalFN’s weekly analysis on diversified equity mutual funds! In this issue, we have analysed Nippon India Large Cap Fund, highlighting its performance, peer comparison, investment strategy, fundamentals, portfolio, and suitability.

Nippon India Large Cap Fund is a Large Cap Mutual Fund that has outperformed the benchmark by a remarkable margin in the last few years, even as many of its peers are finding it difficult to generate alpha.

Nippon India Large Cap Fund is managed by Mr Shailesh Raj Bhan, who is the Chief Investment Officer – Equities at Nippon India Asset Management Company.

What is the growth of Rs 10,000 invested in Nippon India Large Cap Fund five years ago?

Graph 1

Past performance is not an indicator of future returns
Data as of September 05, 2023 

Launched in August 2007, Nippon India Large Cap Fund was originally launched as a large & mid-cap fund that invested predominantly in the top 200 companies. The fund was recategorised as a Large Cap Fund in 2018 to align with SEBI’s norms. Under its previous mandate too, Nippon India Large Cap Fund used to maintain a large-cap biased portfolio (investing around 75-80% of its assets in the segment) along with a significant exposure to mid-cap stocks. Accordingly, the change in categorisation did not impact the way the fund managed its portfolio. Notably, Nippon India Large Cap Fund witnessed a lean phase between 2019 and 2020 as its bets in certain segments took time to payoff. However, the fund gained immensely when the fund’s high conviction calls in the Banking, Engineering, Manufacturing, Hotels, and PSU segments turned out to be rewarding. Nippon India Large Cap Fund has done exceptionally well in the last couple of years and has found a place among the top quartile performers in the category. In the last five years, Nippon India Large Cap Fund’s NAV grew at a CAGR of 14.7% compared to a growth of 12.8% in its benchmark S&P BSE 100 – TRI. An investment of Rs 10,000 in Nippon India Large Cap Fund five years back would have now appreciated to Rs 19,810 as against a valuation of Rs 18,195 for a simultaneous investment in its benchmark.

[Read: 7 Top-performing Large Cap Mutual Funds with High Returns on 5-Year SIP]

How has Nippon India Large Cap Fund performed in the past?

Scheme Name Corpus (Cr.) 1 Year 2 Year 3 Year 5 Year 7 Year Std Dev Sharpe
Nippon India Large Cap Fund 15,583 22.19 16.82 29.33 14.69 15.29 15.93 0.39
HDFC Top 100 Fund 25,776 18.40 13.84 25.84 13.02 13.49 15.48 0.35
ICICI Pru Bluechip Fund 40,286 17.19 11.69 24.11 13.68 14.27 13.83 0.35
Tata Large Cap Fund 1,613 14.85 8.61 23.51 12.79 12.57 14.56 0.33
Mahindra Manulife Large Cap Fund 265 13.77 8.74 23.48 14.47 0.33
SBI BlueChip Fund 39,301 14.48 9.31 23.23 13.59 12.93 14.81 0.32
Aditya Birla SL Frontline Equity Fund 23,758 14.23 8.45 22.70 12.39 12.30 14.39 0.32
Edelweiss Large Cap Fund 531 17.40 9.29 22.55 13.38 14.06 13.88 0.33
Kotak Bluechip Fund 6,325 14.07 7.85 22.46 14.00 13.63 13.98 0.32
Franklin India Bluechip Fund 6,870 11.61 5.60 22.20 10.84 10.93 15.95 0.28
S&P BSE 100 – TRI 12.29 8.38 22.24 12.78 13.56 14.72 0.31

The securities quoted are for illustration only and are not recommendatory.
Returns are point to point and in %, calculated using the Direct Plan-Growth option. Those depicted over 1-Yr are compounded annualised.
Data as of September 05, 2023
(Source: ACE MF)
Please note, this table only represents the best-performing funds based solely on past returns and is NOT a recommendation. Mutual Fund investments are subject to market risks. Read all scheme-related documents carefully before investing. Past performance is not an indicator for future returns. The percentage returns shown are only for indicative purposes.

Nippon India Large Cap Fund has an encouraging long-term performance track record. In the last 1-year and 2-year period, Nippon India Large Cap Fund generated a lead of around 8-10 percentage points over its benchmark and also stood among category toppers. This comes at a time when many schemes in the Large Cap Mutual Fund category have been struggling to keep pace with the benchmark index. The fund’s recent extraordinary performance has improved the fund’s long-term performance as well. Over the longer time frames of 5 years and 7 years, Nippon India Large Cap Fund has generated a decent alpha over the benchmark and outpaced most of its peers.

In terms of risk-reward parameters, though the volatility (standard deviation) registered by the fund is higher than the benchmark and its peers, it has compensated its investors well for the level of risk taken by delivering robust risk-adjusted returns, as denoted by its Sharpe ratio.

[Read: Are Large Cap Mutual Funds Falling Out of Favour?]

What is the investment strategy of Nippon India Large Cap Fund?

Being a Large Cap Fund, Nippon India Large Cap Fund is mandated to hold at least 80% of its assets in equity and equity-related instruments of large-sized companies. Large-cap stocks are defined as stocks of the top 100 companies by full market capitalisation.

The fund is benchmark-agnostic and the investments are made as per the conviction of the fund manager. Nippon India Large Cap Fund aims to own dominant businesses at reasonable valuations to reduce the risks and generate alpha. While picking stocks, the fund focuses on criteria such as sound management, good track record of the company, potential for future growth, and industry economic scenario. It lays emphasis on companies which are leaders or potential leaders, with well-established business models, sustainable & growing free cash flows, and have high RoE or potentially high RoE.

What are the top portfolio holdings in Nippon India Large Cap Fund?

Graph 2Graph 2

Holding in (%) as of July 31, 2023
(Source: ACE MF) 

Nippon India Large Cap Fund usually holds around 55-60 stocks in its portfolio. As of July 31, 2023, the fund held 59 stocks in its portfolio, with the top 10 stocks accounting for 49.2% of its assets. The fund’s stock holdings include popular large-cap names such as HDFC Bank, ICICI Bank, Reliance Industries, SBI, and L&T. Notably, five out of the fund’s top 10 holdings belong to the Banking & Finance sector. In the last one year, Nippon India Large Cap Fund’s portfolio turnover has ranged between 40-130% of its assets, signifying moderate churning in the portfolio.

In the last two years, a significant rally in stocks such as The Indian Hotels Company, ITC, SBI, ICICI Bank, L&T, NTPC, Chalet Hotels, Reliance Industries, ABB India, and Bank of Baroda, among others, aided the fund’s growth. The fund also benefitted from its holdings in Linde India, HDFC Bank, Sun Pharma, and Siemens, among others.

Sector-wise, though Nippon India Large Cap Fund’s portfolio is skewed towards cyclicals, it also holds substantial exposure to defensive and sensitive sectors. Banking & Finance collectively account for 36.7% of its assets, while Engineering, Consumption, Petroleum, Infotech, Hotels, Pharma, and Auto are among the other core sectors in the fund’s portfolio.

Is Nippon India Large Cap Fund suitable for my investment goals and risk tolerance?

While Nippon India Large Cap Fund is not a great bear market performer, its performance during bull phases is commendable. Moreover, though the fund’s volatility is slightly higher than the benchmark and its peers, it has proven its ability to compensate investors well for the level of risk taken by generating noteworthy risk-adjusted returns.

Nippon India Large Cap Fund focuses on creating a diversified portfolio of high-potential stocks and sectors. It has an experienced fund manager at the helm who has been managing the scheme for over a decade now. He has high conviction in the fund’s portfolio holdings which may reward investors reasonably over the long run. The fund also does not hesitate to churn a portion of the portfolio to take advantage of attractive opportunities.

Nippon India Large Cap Fund is suitable for investors looking for an actively managed Large Cap Fund with some tactical exposure to mid-cap stocks and having an investment horizon of at least 5 years.

[Read: 3 Best Large Cap Mutual Funds to Invest in 2023 – Top Performing Large Cap Mutual Funds in India]

Note: This write up is for information purpose and does not constitute any kind of investment advice or a recommendation to Buy / Hold / Sell a fund. Returns mentioned herein are in no way a guarantee or promise of future returns. As an investor, you need to pick the right fund to meet your financial goals. If you are not sure about your risk appetite, do consult your investment consultant/advisor. Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.

This article first appeared on PersonalFN here

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