Nippon India Growth Fund: Pursuing Quality Stocks at Reasonable Valuations

Launched in October 1995, Nippon India Growth Fund is one of the oldest and most popular schemes in the Mid Cap Fund category. Until 2017, the fund followed a multi-cap strategy, maintaining a balanced exposure across large-cap, mid-cap, and small-cap stocks. However, it now focuses on a mid-cap biased portfolio in line with SEBI's definition for Mid Cap Funds, though it still retains substantial exposure to large-cap and small-cap stocks for diversification. Therefore, its past performance record may not be directly comparable. Nevertheless, under its current investment mandate, Nippon India Growth Fund has performed exceptionally well and has become one of the category's outperformers, consistently surpassing the benchmark.

Nippon India Growth Fund employs the Growth at Reasonable Price (GARP) strategy to identify high-potential stocks. The fund avoids investing in momentum-driven bets, instead focusing on quality stocks available at reasonable valuations and holding them with a long-term perspective. Its higher allocations in sectors such as Engineering, Finance, Pharma, and Infotech have particularly benefited its performance. Over the past few years, this strategy has attracted significant investor attention, making it one of the largest schemes in its category (current AUM is Rs 34,584 crore as of November 30, 2024).

In the last five years, Nippon India Growth Fund has delivered a CAGR of 30.2%, outperforming its benchmark, the Nifty Midcap 150 - TRI, which registered a CAGR of 28.6%. An investment of Rs 10,000 in the fund five years ago would have nearly quadrupled to Rs 37,455, compared to Rs 35,208 if invested in the benchmark.

While Nippon India Growth Fund's past performance under its multi-cap strategy isn't directly comparable, its performance since transitioning to the Mid Cap Fund category has been highly commendable. It now consistently ranks among the top quartile performers within its category across various time frames, significantly outperforming the benchmark. Over rolling 1-year and 2-year periods, Nippon India Growth Fund has outpaced many of its notable peers and surpassed the benchmark, the Nifty Midcap 150 - TRI, demonstrating its skill in identifying high alpha opportunities. Over longer periods of 3 years, 5 years, and 7 years, the fund has outperformed its benchmark and the category average by approximately 1.5 to 4 percentage points, indicating its consistent ability to perform well across different market conditions.

Nippon India Growth Fund exhibits volatility similar to its category average but is lower than the benchmark. Additionally, its Sharpe ratio (0.38) is notably superior to that of the benchmark and most of its peers. This highlights the fund's ability to deliver better returns relative to the risks taken, making it an attractive choice for investors with a long-term investment perspective.

What is the investment strategy of Nippon India Growth Fund?

Classified under the Mid Cap Funds category, Nippon India Growth Fund follows a mandate to invest a minimum of 65% of its assets in mid-sized companies. The fund allocates 65-70% of its assets to mid caps, with the remainder invested in large-cap and small-cap stocks. It focuses on selecting high-growth companies across sectors that offer reasonable valuations using a bottom-up stock-picking approach. It also incorporates some elements of value investing.

Nippon India Growth Fund maintains strong conviction in its stock holdings and avoids frequent portfolio turnover. The fund aims to generate alpha by identifying emerging trends and scalable businesses at an early stage, which are likely to benefit from domestic growth. It holds a well-diversified portfolio at all times, investing in a wide range of stocks across sectors.

Nippon India Growth Fund holds a sizeable portfolio of 90-100 stocks. As of November 30, 2024, the fund held 97 stocks in its portfolio with the top 10 stocks accounting for about 24% of its assets. Notably, the fund has restricted exposure in each stock to under 3%, and around 55 stocks carry exposure of less than 1% in each. Names like Power Finance Corporation, Persistent Systems, Cholamandalam Financial Holdings, BSE, and Fortis Healthcare find place among the fund's top holding and have also been part of the fund's core portfolio for over two years. Nippon India Growth Fund holds most of its stocks with a long-term view and has recorded a low turnover of 15- 20% in the last one year.

In the last two years, Nippon India Growth Fund benefitted the most from its holdings in Power Finance Corporation, Varun Beverages, Trent, and Cholamandalam Financial Holdings that turned out to be multibaggers. Persistent Systems, Zomato, Prestige Estates Project, Fortis Healthcare, Bharat Electronics, NTPC, The Indian Hotels Company, Supreme Industries, Hindustan Aeronautics, Angel One, Max Financial Services, and Interglobe Aviation, were among the other major contributors to its performance.

Nippon India Growth Fund's portfolio is skewed towards stocks in the Finance and Engineering sectors that collectively form around 27% of its assets. It also held major allocation to Pharma, Consumption, Infotech, Consumer Durables, Bank, Auto Ancillaries, and Retailing that together form another 43.7% of its holdings. It also holds diversification in Power, Healthcare, Auto, and Telecom among others. The fund's portfolio is fairly diversified across cyclical, defensive, and sensitive sectors.

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

Nippon India Growth Fund has shown its potential to deliver reasonable growth across different market phases. Its strategic allocation to fundamentally sound mid-cap companies, along with investments in large-cap and small-cap stocks, enables the fund to generate alpha and effectively navigate through complete market cycles. It has also rewarded investors for taking risks by offering solid risk-adjusted returns.

Nippon India Growth Fund focuses on long-term growth by identifying high-potential stocks using a 'Growth At Reasonable Price' strategy. Instead of chasing market trends, the fund seeks for high-growth opportunities within mid caps and across other market cap segments. It takes an active sectoral approach that is not strictly tied to a benchmark, focusing on selecting high-conviction stocks in scalable businesses.

Nippon India Growth Fund is suitable for investors looking for a high-conviction Mid Cap Fund with significant allocations across market segments, and having an investment horizon of at least 5-7 years.

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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.

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DIVYA GROVER is the co-editor for FundSelect, the flagship research service of PersonalFN. She is also the co-editor of DebtSelect. Divya is an avid reader which helps her in analysing industry trends and producing insightful articles for PersonalFN’s popular newsletter – Daily Wealth letter, read by over 1.5 lakh subscribers.
Divya joined PersonalFN in 2019 and has since then used stringent quantitative and qualitative parameters to analyse funds to provide honest and unbiased research to investors. She endeavours to enable investors to make an informed investment decision and thereby safeguard their wealth.

Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.
This article is for information purposes only and is not meant to influence your investment decisions. It should not be treated as a mutual fund recommendation or advice to make an investment decision in the above-mentioned schemes.

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