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

Nippon India Multi Cap Fund is a popular Multi Cap Fund that has recorded a strong improvement in its performance by holding an excessively diversified portfolio and staying put some of its high conviction bets despite disappointment in the short-term.

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

Past performance is not an indicator of future returns
Data as of September 20, 2023 

Launched in March 2005, Nippon India Multi Cap Fund is the erstwhile Reliance Equity Opportunities Fund that was later renamed as Reliance Multi Cap Fund after its categorisation under Multi Cap Funds. Unlike most of its peers that preferred to maintain a large-cap biased portfolio and later migrated to the Flexi Cap Fund category, Nippon India Multi Cap Fund has always been a true-to-name Multi Cap Fund that holds a well-balanced allocation across market caps.

Notably, Nippon India Multi Cap Fund witnessed a lean phase between 2019 and 2020 as its bets in certain segments took time to pay off. However, the fund has gained immensely in the last few years as its high conviction calls in the Banking, Engineering, Retail, Hotels, and PSU segments turned out to be rewarding. The fund has done well and flourished under the supervision of Mr Shailesh Raj Bhan, who aims to identify high growth potential and fundamentally sound stocks across industries that are available at reasonable valuations.

Over the past 5 years, Nippon India Multi Cap Fund has delivered returns at a CAGR of around 18.4%, thereby outperforming the 15.5% delivered by its benchmark Nifty500 Multicap 50:25:25 – TRI index. An investment of Rs 10,000 in Nippon India Multi Cap Fund five years back would have now more than doubled to Rs 23,571 compared to a valuation of Rs 20,819 for a simultaneous investment in its benchmark.

[Read: Multi-cap Fund v/s Flexi-cap Fund: Which is a Better Fit for Your Portfolio?]

How has Nippon India Multi 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 Multi Cap Fund 20,192 26.92 23.19 37.32 18.44 16.52 17.21 0.47
Quant Active Fund 5,688 11.81 15.40 32.31 24.15 21.43 18.50 0.40
Mahindra Manulife Multi Cap Fund 2,120 20.82 14.79 31.66 21.03 16.73 0.42
ICICI Pru Multicap Fund 8,564 22.02 14.13 28.67 14.74 14.24 16.02 0.38
Baroda BNP Paribas Multi Cap Fund 1,881 17.13 11.23 27.60 16.51 14.33 16.13 0.37
Sundaram Multi Cap Fund 2,099 13.88 11.07 25.85 14.23 14.54 15.02 0.38
Invesco India Multicap Fund 2,695 17.45 10.28 25.59 15.23 14.94 16.13 0.36
ITI Multi-Cap Fund 643 22.32 10.56 22.63 15.22 0.31
Nifty500 Multicap 50:25:25 – TRI 18.49 12.39 27.23 15.52 14.99 15.64 0.27

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 20, 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 Multi Cap Fund has an encouraging long-term performance track record. Notably, the fund’s higher allocation to certain out-of-favour segments resulted in underperformance during CY 2019 to 2020 compared to the benchmark and many of its peers. Nonetheless, Nippon India Multi Cap Fund has delivered noteworthy performance as the market rallied and mid & small-caps have outperformed since the latter half of 2020.

In the last 2-year and 3-year periods, Nippon India Multi Cap Fund has clocked a lead of around 8-11 percentage points over the benchmark and the category average. The recent superior growth has improved its long-term performance numbers as well. Over the longer 5-year and 7-year periods, the fund has generated a decent lead over the benchmark and has outpaced many of its peers.

It has also performed well in terms of risk-adjusted returns. Its standard deviation (17.21%, annualised) is significantly higher than that of its benchmark (15.64%, annualised) as well as the category average (16.37%, annualised). However, Nippon India Multi Cap Fund has compensated its investors well for the level of risk taken as demonstrated by its risk-adjusted returns (Sharpe ratio), wherein it has outpaced the benchmark and the category average by a significant margin.

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

Categorised under Multi Cap Funds, Nippon India Multi Cap Fund is mandated to allocate at least 75% of its assets in equity & equity-related instruments, investing a minimum of 25% each in the large-cap, mid-cap, and small-cap segments. Accordingly, Nippon India Multi Cap Fund holds a well-balanced allocation across market caps.

The fund aims to seek both growth and value stocks that are likely to benefit from the growth in the economy, with a special focus on high ROE companies. It adopts a blend of the ‘top-down’ and ‘bottom-up’ approach to stock selection and takes active sector calls. While picking stocks the fund endeavours to identify opportunities ahead of the market, even though it may result in underperformance in the short term.

Nippon India Multi Cap Fund prefers to avoid momentum-driven bets and focuses on high-conviction long-term bets. It emphasises building a portfolio comprising a combination of market leaders, sustainable alpha creators, and emerging/niche themes.

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

Graph 2Graph 2

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

Nippon India Multi Cap Fund usually holds a large portfolio of around 80-95 stocks in its portfolio. As of August 31, 2023, Nippon India Multi Cap Fund held 94 stocks in its portfolio, with the top 10 stocks accounting for 34.1% of its assets. Names like HDFC Bank, Linde India, EIH, Axis Bank, and ICICI Bank currently figure among its top portfolio holdings.

Nippon India Multi Cap Fund has a long tail of around 65 stocks having an allocation of less than 1% in each, which together accounted for around 35% of its assets. Notably, many of these small-exposure stocks have been in the portfolio for well over a year now. Though Nippon India Multi Cap Fund usually has a low turnover ratio of around 35-60%, it does not hesitate to churn a portion of the portfolio to benefit from sector/stock-specific opportunities.

In the last two years, Nippon India Multi Cap Fund gained the most from its prominent bets on Linde India, The Indian Hotels Company, and Vesuvias India which turned out to be multi-baggers in the portfolio. The fund has also benefitted from its holdings in EIH, Triveni Turbine, Kennametal India, Shoppers Stop, L&T, CIE Automotive India, VRL Logistics, Schneider Electric Infrastructure, ITC, Trent, GE T&D India, among many others.

Sector-wise, though Nippon India Multi Cap Fund ‘s portfolio is skewed towards cyclicals, it also holds substantial exposure to defensive and sensitive sectors. As of August 31, 2023, Nippon India Multi Cap Fund’s portfolio was skewed towards Financial and Engineering stocks that cumulatively formed around 41.7% of its assets. The fund also held substantial exposure to Pharma, Hotels, Retailing, Consumption, Chemicals, and Power having allocation in the range of 5-7%. The top 5 sectors in the fund’s portfolio together accounted for around 54.8% of its assets.

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

With a focus on long-term growth, Nippon India Multi Cap Fund aims to identify high growth potential stocks by following the ‘Growth at Reasonable Price’ approach. At an AUM of around Rs 20,000 crores, Nippon India Multi Cap Fund maintains a highly diversified portfolio comprising a large number of stocks spread across various market caps and sectors/industries. While the fund aims to steer clear of chasing market momentum, it often looks for high growth opportunities available across market cap segments.

While Nippon India Multi Cap Fund is not a great bear market performer, its performance during bull phases has been commendable. The fund has flourished under the supervision of Mr Shailesh Raj Bhan, who has been at the helm for 18 years now. His adherence to market leaders and high RoE companies, along with a hint of a value-oriented approach offers good growth prospects, while the tactical allocation to emerging and temporarily out-of-favour themes enables the fund to generate respectable alpha.

Nippon India Multi Cap Fund is suitable for investors looking to benefit from a potential broad-based market growth with a long-term view of at least 5-7 years.

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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