Nippon India Vision gets a Neutral rating

By Kavitha Krishnan |  12-11-19 | 
 
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About the Author
Kavitha Krishnan is a Senior Research Analyst on Morningstar's Fund Research team. She has over 9 years of experience in the Financial Sector. She would like to hear from you, but cannot give financial advice.

Meenakshi Dawar and Sanjay Doshi took over the management responsibilities on this fund from erstwhile manager Ashwini Kumar in May 2019.

This fund was previously run as a benchmark-agnostic high-conviction concentrated strategy that invested in two or three meaningful sectors with a long-term view.

The fund recently saw a change in its mandate as well as leadership, and we think that the strategy is still coming together.

  • Fund: Nippon India Vision
  • Fund Managers: Meenakshi Dawar, Sanjay Doshi
  • Category: Equity - Large & Mid Cap
  • Investment Style: Large Growth
  • Star Rating: 1 star
  • Analyst Rating: Neutral
  • Analysed by: Kavitha Krishnan
  • Date of Analysis: October 2019

Performance

The fund underwent a change in mandate in May 2019.

Following the change in mandate, the fund is now being anchored to its benchmark (IISL Nifty Large Mid Cap 250 TR) and aims to have diversified exposure across sectors. This change is designed to reduce the volatility that stood out as a characteristic of the fund in its previous avatar. Hence, it’s important to evaluate the fund’s performance under its new mandate and current managers.

 Post the change, the fund showed a dip in performance when compared with the category average. This could be a short-term issue that reflects the transition period and it’s important to monitor how the fund does over a full market cycle.

In the periods prior to May 2019, a series of mediocre performances dented the fund’s long-term track record.

Over a 5-year period (as of May 2019), the fund returned 10.60% (annualized) as opposed to the category, which returned 13.16%. This performance places the fund in the fourth quartile versus its peers. The fund underperformed on a 3-year basis, too, returning 9.81% versus its category peers, and fell in the fourth quartile during this period.

Process

Meenakshi Dawar and Sanjay Doshi ply a growth-at-a-reasonable-price strategy. They scout for firms with strong and sustainable business models and are flexible with valuations, given the company’s growth prospects.

They tend to take a 2- to 3-year view on stocks and focus on factors such as return on equity and return on capital employed when evaluating companies.

The research-orientation and qualitative overlay looks for companies with strong management teams, robust business models, and sustainable competitive advantages. The managers tend to buy into stocks based on the "best fit" for the portfolio based on its anchoring with the benchmark both at a stock and sector level. Further, they seek to mitigate risks by ensuring that they invest in high-quality names and keep a constant track of the firms they invest in.

Having said that, it is imperative to point out that the portfolio is not devoid of risks--especially considering that it’s still a work in progress. The recent change in the fund’s mandate has led to some portfolio-level changes, with the managers buying into benchmark stocks with a view to align the fund to its current mandate. The portfolio currently constitutes around 55 odd holdings, with over 20 stocks constituting the tail end of the portfolio and carrying weights lower than 1%.

The managers also focus on the top-down approach. Factors such as the interest-rate scenario, barriers to entry, pricing power, policy measures, and expected consumption/spending patterns are considered when investing. They use the internal model portfolio as an initial reference point while building the portfolio and consider analyst recommendations on this fund. The focus is on reducing volatility and building a stable long-term portfolio.

The fund could be a good choice for investors who prefer a low-risk strategy with consistent returns. But do look at the execution of the strategy under its new mandate.

Do read the brief analyst note as well as look at the portfolio details.

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