'The market is clearly far more attractive today'

Summary: Nippon India's large-cap fund has led its category over 10 years with nearly 16 per cent CAGR. The framework behind it hasn't changed in 27 years. And the last 18 months tested it harder than most. What held, and what didn't, is the more interesting story.

Summary: Nippon India's large-cap fund has led its category over 10 years with nearly 16 per cent CAGR. The framework behind it hasn't changed in 27 years. And the last 18 months tested it harder than most. What held, and what didn't, is the more interesting story. Twenty-seven years in equity markets teaches you one thing above all else: valuations always matter. Sailesh Raj Bhan, President and CIO – Equity Investments at Nippon India Mutual Fund, has spent those years building and refining a framework that has remained largely unchanged across cycles—buy quality businesses at sensible prices, choose risks deliberately and stay the course when the market disagrees. Bhan oversees some of Nippon India’s flagship strategies, including its large-cap and multi-cap funds. Both have delivered consistent long-term returns not by chasing growth at any price, but by refusing to pay for it when the numbers do not justify it. In a market that has spent the last 18 months consolidating, that discipline is what he keeps returning to. Twenty-seven years, he would say, have given him little reason to change it. Your large-cap fund holds a five-star rating for nearly three years and leads the category over 10 years with nearly 16 per cent CAGR. What’s the stock-picking framework behind those returns, and what’s been the single biggest driver of alpha? The good part about India as a market is that there is a lot of alpha available across large-, mid- and small-cap categories. Interestingly, it comes down to how we approach the market, what risks we choose to take and which we choose to avoid. If we keep repeating this over many cycles, it eventually delivers the outcomes we all aim to achieve. In the large-cap fund, over the years, our basic approach, which is common across the fund house as well, has been to respect valuations. We believe valuations are an extremely important part of portfolio construction because, over time, either mean reversion comes into play or you see disappointments in companies that were priced for perfection, often because the last couple of years were good. So, respect for valuations, or what we internally call a ‘growth at a reasonable price’ approach, is central to how we construct portfolios. Second, we believe that to generate returns in equities, you have to take risks. There are no excess returns over the index without taking some risk. The key is to choose the right risks, those that will pay off if you get them right. That selection of the right risk is driven by strong bottom-up research, supported by a significantly large and experienced research team. This ground-up approach helps us identify opportunities, take those calls and size them appropriately within the portfolio, while ensuring that we don’t overpay for growth. If you put these three elements together, respect for valuations, choosing the right risks and strong bottom-up research, it’s essentially a framework that we’ve been consistently following. Over the last 2 decades, we have tried to repeat the simple tenet. The environment also plays a role in enabling returns. Over the last 10 years, markets have experienced several dislocations. For instance, around 2016-17, the market was extremely narro