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 Fund that excels in selecting stocks with high growth potential. It has notably exceeded expectations, particularly in rising markets, and has consistently delivered superior returns compared to many peers.

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 October 29, 2024
(Source: ACE MF, data collated by PersonalFN) 

Launched in August 2007, the Nippon India Large Cap Fund initially targeted investments in both large and mid-cap stocks, focusing on the top 200 companies. In 2018, it was reclassified as a Large Cap Fund to meet SEBI guidelines. Despite this change, the fund continued to favour large-cap stocks while maintaining a tactical exposure to mid-cap segments. Nippon India Large Cap Fund experienced a challenging phase from 2019 to 2020, where its investments took time to yield returns. However, it has since demonstrated a remarkable turnaround, emerging as one of the top quartile performers in its category. The fund has notably capitalised on high-conviction bets in sectors such as Banking, Engineering, Manufacturing, Hotels, and PSUs, contributing to its strong performance.

Under the stewardship of Mr Shailesh Raj Bhan, Nippon India Large Cap Fund’s NAV has seen an impressive CAGR of 21.4% over the last five years, compared to the benchmark BSE 100 – TRI’s CAGR of 18.3%. An investment of Rs 10,000 in Nippon India Large Cap Fund five years ago would have grown to Rs 26,415, surpassing the benchmark’s valuation of Rs 23,151. The fund’s performance reflects its ability to leverage market rallies and its strategic sectoral allocations. It employs a disciplined investment approach, focusing on fundamentally strong large-cap stocks with growth potential, while selectively incorporating mid-cap opportunities to enhance returns.

The fund’s recent success is backed by its robust risk management and adaptability to market conditions. Nippon India Large Cap Fund’s long-term performance, coupled with its strategic sectoral picks and proactive management, positions it as a strong choice for investors seeking a blend of stability and growth.

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	34,432	37.00	27.03	24.84	19.87	17.29	13.71	0.30
HDFC Top 100 Fund	38,684	33.45	23.97	21.61	17.71	15.38	13.15	0.26
ICICI Pru Bluechip Fund	66,207	35.36	23.33	21.19	19.51	16.67	12.54	0.28
JM Large Cap Fund	429	39.84	24.63	20.55	18.58	15.11	13.81	0.25
Baroda BNP Paribas Large Cap Fund	2,440	36.06	22.80	19.40	19.72	16.66	13.08	0.25
Invesco India Largecap Fund	1,290	35.72	20.90	19.31	18.72	16.13	14.32	0.21
Edelweiss Large Cap Fund	1,123	31.86	22.00	18.82	19.01	16.68	13.11	0.23
Tata Large Cap Fund	2,531	31.24	20.24	18.64	17.62	14.96	13.67	0.20
Bandhan Large Cap Fund	1,745	34.37	20.25	17.90	18.09	15.25	14.40	0.21
Mahindra Manulife Large Cap Fund	596	30.43	19.04	17.83	19.22	—	13.47	0.19
BSE 100 – TRI		28.07	18.63	17.26	17.47	15.47	13.70	0.18

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 October 29, 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 a strong track record of long-term performance. Over the past 1 to 3 years, the fund has outperformed its benchmark, the BSE 100 – TRI, by approximately 7.5-9 percentage points on a rolling return basis. It has also consistently led the category returns during this period. This impressive performance stands out, especially when many Large Cap Mutual Funds have struggled to match the benchmark index. The recent success of Nippon India Large Cap Fund has bolstered its long-term performance, with the fund generating a respectable alpha of around 2 percentage points over both the benchmark and the category average over the last 5 and 7 years on a rolling return basis.

In terms of risk and reward, Nippon India Large Cap Fund’s volatility (standard deviation) is comparable to that of the benchmark and category average, and it has effectively rewarded investors for the risks taken. This is evident in the fund’s strong risk-adjusted returns, as demonstrated by its superior 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 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. 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 but that are available at reasonable valuations. The fund managers resist following market momentum and hold each of the high-conviction stock for the long term.

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

Holding in (%) as of September 30, 2024
(Source: ACE MF, data collated by PersonalFN) 

Nippon India Large Cap Fund usually holds around 50-65 stocks in its portfolio. As of September 30, 2024, the fund held 65 stocks in its portfolio, with the top 10 stocks accounting for nearly 48.8% of its assets. The fund’s top stock holdings include popular large-cap names such as HDFC Bank, ICICI Bank, Reliance Industries, ITC, and Infosys. Notably, four 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 20%-40% of its assets, signifying low churning in the portfolio.

In the last two years, a significant rally in stocks such as L&T, GE Vernova T&D India, Chalet Hotels, Zomato, and HCL Technologies, aided Nippon India Large Cap Fund’s significant growth. The fund also benefitted from its holdings in ITC, Tata Motors, SBI, Siemens, ICICI Bank, Mahindra & Mahindra, Axis Bank, Sun Pharma, and NTPC among others.

Nippon India Large Cap Fund is benchmark-agnostic and takes active sectoral bets that are poised to benefit from economic growth. Sector-wise, though the fund’s portfolio is skewed towards cyclicals, it also holds substantial exposure to defensive and sensitive sectors. Banking & Finance collectively account for 33.8% of its assets, while Consumption, Infotech, Engineering, Power, Petroleum, Hotels, Pharma, 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?

Nippon India Large Cap Fund focuses on long-term growth by identifying high-growth-potential stocks using a ‘Growth At Reasonable Price’ strategy. Rather than chasing market trends, the fund seeks out high-growth opportunities within large caps and across different market cap segments.

Although Nippon India Large Cap Fund may not excel in bear markets, it performs well during bull phases. Its balanced approach, which includes a core allocation to fundamentally strong large-cap stocks and strategic investments in mid-cap and small-cap stocks, allows it to generate reasonable alpha and navigate complete market cycles effectively. The fund has also demonstrated its ability to reward investors for the risks they take by delivering solid risk-adjusted returns.

Nippon India Large Cap Fund is suitable for those seeking a large-cap-biased portfolio with a reasonable exposure to midcap and small-cap stocks with a long-term investment horizon of at least 5 years.

Watch this video to explore the top performing Large Cap Funds of 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. Registration granted by SEBI, Membership of BASL and certification from NISM no way guarantee performance of the intermediary or provide any assurance of returns to investors.

The securities quoted are for illustration only and are not recommendatory.

This article first appeared on PersonalFN here