Nippon India Small Cap Fund - Growth INF204K01HY3

Nippon India Small Cap earns an Above Average Process Pillar rating.

The most important driver of the rating is the fund's impressive long-term risk-adjusted performance. This can be seen in its ten-year alpha calculated relative to the category average, which suggests that the managers have shown skill in their allocation of risk. Management team experience, which averages 18 years at this fund, also strengthens the process. However, the process is limited by its parent firm's subpar risk-adjusted performance, as shown by the firm's average 10-year Morningstar Rating of 2.8 stars. A lower star rating suggests that the firm has struggled to outperform on a risk-adjusted basis.

This strategy hews closely to the market cap and investment style of its Small-Cap category peers. Examining additional factor exposure, this strategy has exhibited a tilt toward high-volatility stocks or the shares of companies with histories of the higher standard deviation of returns, compared with Morningstar Category peers in the last few years. Such exposure tends to pay off when markets are hot and to be costly when they are not. In recent months, the strategy was more exposed to the Volatility factor compared with its Morningstar Category peers as well. This strategy has also been exposed to liquid stocks during these years. This gives the managers more flexibility during bear markets to sell without adversely affecting prices. Compared with category peers, the strategy also had more exposure to the Liquidity factor in the most recent month. In addition, this strategy has taken on exposure to high-momentum stocks in these years. Momentum strategies wager that market outperformers will continue to outperform, and laggards will continue to lag. Higher exposure to the former could mean the managers are overweighting stocks on winning streaks. In recent months, however, the strategy had less Momentum factor exposure over its peers. More information on a fund and its respective category's factor exposure can be found in the Factor Profile module within the Portfolio section.

The portfolio is overweight in consumer defensive by 3.8 percentage points in terms of assets compared with the category average, and its technology allocation is similar to the category. The sectors with low exposure compared with category peers are consumer cyclical and healthcare, with consumer cyclical underweighting the average portfolio by 3.1 percentage points of assets and healthcare similar to the average. The portfolio has 235 holdings and is similarly diversified as peers, with 13.7% of portfolio assets concentrated within the top 10 holdings. And in closing, in terms of portfolio turnover, looking at year-over-year movements, 22% of the fund's holdings have changed, whether through increasing, decreasing, or changing a position.