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 significantly surpassed the benchmark, showcasing an impressive performance that stands out in comparison to many of its peers struggling to generate alpha. The fund’s strategy centres on identifying stocks poised for substantial future growth.

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

Past performance is not an indicator of future returns
Data as of March 26, 2024
(Source: ACE MF, data collated by PersonalFN) 

Launched in August 2007, Nippon India Large Cap Fund was originally positioned as a Large & Mid Cap Fund with a focus on investing predominantly in the top 200 companies. In 2018, the fund underwent recategorisation to comply with the SEBI’s guidelines, transitioning into a Large Cap Fund. Under its previous mandate, 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 have a significant impact on 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 pay off. However, the fund gained immensely from 2021 onwards when the fund’s high conviction calls in the Banking, Engineering, Manufacturing, Hotels, and PSU segments turned out to be rewarding. The fund has done exceptionally well in the last few years amid a broad-based market rally and a focus on high-growth stocks, and has found a place among the top quartile performers in the category.

Nippon India Large Cap Fund has thrived under the supervision of its fund manager Mr Shailesh Raj Bhan, who has been managing the scheme since its inception. In the last five years, Nippon India Large Cap Fund’s NAV grew at a CAGR of 18.2% compared to a growth of 16% in its benchmark S&P BSE 100 – TRI. An investment of Rs 10,000 in the fund five years back would have now appreciated to Rs 23,122 as against a valuation of Rs 21,047 for a simultaneous investment in its benchmark.

How has Nippon India Large Cap Fund performed on a rolling return basis?

Scheme Name	Corpus (Cr.)	1 Year	2 Year	3 Year	5 Year	7 Year	Std Dev	Sharpe
Nippon India Large Cap Fund	22,767	26.70	19.17	28.32	15.95	16.15	14.32	0.36
HDFC Top 100 Fund	31,653	23.23	16.39	25.06	14.60	14.50	13.86	0.31
ICICI Pru Bluechip Fund	51,554	21.61	14.66	23.73	15.41	15.31	12.83	0.33
Tata Large Cap Fund	1,968	18.81	11.74	22.43	14.27	13.63	13.86	0.26
Edelweiss Large Cap Fund	771	21.53	13.16	21.85	15.27	15.26	13.11	0.28
SBI BlueChip Fund	43,355	18.31	11.94	21.84	14.65	13.76	12.99	0.21
Mahindra Manulife Large Cap Fund	380	17.13	10.83	21.62	16.86	—	13.50	0.25
Aditya Birla SL Frontline Equity Fund	26,480	18.07	11.43	21.62	13.63	13.29	13.35	0.25
Kotak Bluechip Fund	7,679	18.00	11.14	21.42	15.45	14.51	13.43	0.25
Invesco India Largecap Fund	983	20.17	11.20	21.08	14.48	14.39	14.69	0.26
S&P BSE 100 – TRI		17.20	11.58	21.44	14.36	14.60	13.95	0.24

The securities quoted are for illustration only and are not recommendatory.
Returns are on a rolling basis and in %. Direct Plan-Growth option. Those depicted over 1-Yr are compounded annualised. Risk ratios are calculated over a 3-year period assuming a risk-free rate of 6% p.a.
Data as of March 26, 2024
(Source: ACE MF, data collated by PersonalFN)
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, 2-year, and 3-year periods, the fund generated a lead of around 7-9.5 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 outpace the benchmark index.

The 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 and reward, while the fund has exhibited higher volatility (standard deviation) compared to the benchmark and its peers, it has effectively rewarded investors for the undertaken risk by providing strong risk-adjusted returns, as reflected in its Sharpe ratio.

[Read: Do Large Cap Funds Make More Sense in An Overheated Equity Market?]

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.

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 emphasises 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.

The fund is benchmark-agnostic and the investments are made as per the conviction of the fund manager. They aim to identify high-growth potential and fundamentally sound stocks across industries that are available at reasonable valuations. The fund managers resist following market momentum and hold each of the high-conviction stocks for the long term.

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

Holding in (%) as of February 29, 2024
(Source: ACE MF, data collated by PersonalFN) 

Nippon India Large Cap Fund usually holds around 55-60 stocks in its portfolio. As of February 29, 2024, the fund held 56 stocks in its portfolio, with the top 10 stocks accounting for nearly 50.6% of its assets. The fund’s top stock holdings include popular large-cap names such as HDFC Bank, ICICI Bank, Reliance Industries, SBI, and ITC. 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 35%-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, Chalet Hotels, L&T, ITC, GE T&D India, and SBI among others, aided Nippon India Large Cap Fund’s significant growth. The fund also benefitted from its holdings in ICICI Bank, HCL Technologies, Siemens, Axis Bank, and Reliance Industries, 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 36.5% of its assets, while Consumption, Engineering, Hotels, Petroleum, Power, Infotech, and Auto are among the other prominent sectors in the fund’s portfolio.

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

With a focus on long-term growth, Nippon India Large Cap Fund aims to identify high-growth-potential stocks by following the ‘Growth at Reasonable Price’ approach. While the fund aims to steer clear of chasing market momentum, it often looks for high-growth opportunities available in large caps and across market cap segments.

While Nippon India Large Cap Fund is not a great bear market performer, its performance during bull phases has been commendable. Its focus on maintaining a balanced allocation in fundamentally sound large-cap stocks, along with strategic allocation to mid-cap and small-cap stocks helps it do well over complete market cycles and even clock reasonable alpha. While the fund exhibits marginally higher volatility compared to both the benchmark and its peers, it has demonstrated its capability to adequately compensate investors for the assumed level of risk, by generating significant risk-adjusted returns.

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.

Watch this video to find out the best Large Cap Funds for 2024:

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