Nippon India Small Cap Fund – Portfolio Analysis

This fund deliberately runs a “small-cap-plus” or “extended multi-cap” strategy rather than a pure small-cap one. It sacrifices some upside in raging small-cap bull markets but protects capital much better in sharp drawdowns (2018–20, 2022, 2025 YTD are good examples).

This is India’s largest small-cap fund by AUM (~₹68,000–70,000 Cr estimated from the values given). It is managed by Samir Rachh and has a very distinct style compared to most other small-cap funds.

1. Key Structural Characteristics (Very Different from Category Average)

Parameter	This Fund	Category Avg	Comment
Number of stocks	235	70–100	Extremely diversified – more like a multi-cap than a typical small-cap fund
Top 10 holding	14.53%	30–45%	Very low concentration risk
Top 5 holding	8.78%	20–30%	Almost no single-stock blow-up risk
Top 3 holding	6.15%	15–20%	One of the least concentrated small-cap funds in India
Large-cap allocation	13.58%	5.64%	Significantly higher large-cap exposure → acts as a volatility dampener
Mid-cap allocation	16.03%	15.44%	Slightly higher
Pure small-cap allocation	66.25%	78.92%	Lower pure small-cap → lower downside risk in crashes
Tiny-cap	0%	0–5%	Avoids micro-cap lottery tickets

Takeaway: This fund deliberately runs a “small-cap-plus” or “extended multi-cap” strategy rather than a pure small-cap one. It sacrifices some upside in raging small-cap bull markets but protects capital much better in sharp drawdowns (2018–20, 2022, 2025 YTD are good examples).

2. Sector Allocation vs Category (Major Deviations)

Sector	Fund	Category	Over/Underweight	Key Insight
Capital Goods	15.5%	~10–12%	+4–5%	Massive overweight – infra/defence/power theme
Financials	12.3%	~15–18%	Slightly under	Surprisingly low for small-cap
Consumer Staples	11.6%	~5–7%	Very high	Defensive high-quality FMCG tilt
Services	11.4%	~8–10%	High	Travel, QSR, rating agencies, education (Physicswallah)
Healthcare	8.8%	~10–12%	Mild under	Decent but not aggressive
Chemicals	6.5%	~10–12%	Underweight	Reduced sharply from 2022–23 peak
Automobile & Ancillaries	5.5%	~8–10%	Under	Surprisingly low
Technology	3.2%	~5–8%	Very low	Almost no IT small-cap exposure
Metals & Mining	2.1%	~4–6%	Under	Avoided the 2024–25 commodity rally
Energy	3.6%	~2–4%	Slightly over	Mostly NLC India, some green energy

Style in one line: Heavy on Capital Goods + Defensive Staples + Services; very light on Chemicals, IT, Auto ancillaries, Metals — completely different from most small-cap peers who are loaded on Chemicals/IT/Auto.

3. Top 10 Holdings (as on 30-Nov-2025)

Rank	Stock	Sector	Weight	Notes
1	Multi Commodity Exchange (MCX)	Services	2.72%	Monopoly, high ROE, recent addition increased
2	HDFC Bank	Financial	1.95%	Large-cap anchor
3	State Bank of India	Financial	1.48%	Large-cap
4	Karur Vysya Bank	Financial	1.38%
5	BHEL	Capital Goods	1.25%	PSU power equipment
6	Apar Industries	Consumer Staples?	1.20%	Actually cables (misclassified)
7	TD Power Systems	Capital Goods	1.16%
8	eClerx Services	Services	1.14%
9	Reliance Industries	Energy	1.13%	Large-cap anchor
10	Axis Bank	Financial	1.12%

→ No stock > 2.72%. Extremely safe concentration profile.

4. Recent Portfolio Changes (Oct → Nov 2025)

Major new buys / big increases

• Physicswallah ₹419 Cr (completely new)
• Orkla India (MTR foods) +₹399 Cr
• Tata Motors (new)
• MCX +₹154 Cr
• Fujiyama Power Systems (new)

Major sells / reductions

• Vishal Mega Mart almost fully exited (-₹283 Cr)
• Inox Wind sharply reduced
• Whirlpool reduced
• HCL Tech fully exited
• TSF Investments reduced

→ Fund manager is rotating out of some 2024–25 winners (Inox Wind, Vishal Mega Mart) and adding new-age consumption (Physicswallah, Orkla) and auto (Tata Motors).

5. Strengths of This Portfolio

1. Extremely low concentration risk – best in class.
2. High large-cap cushion (13.6%) – works beautifully in bear markets.
3. Very high diversification (235 stocks) – reduces impact of any single bankruptcy/fraud.
4. Strong capital-goods overweight – well positioned for continuing capex cycle (defence, power, railways).
5. Defensive staples tilt – gives stability when growth cracks.
6. Proven crisis performance – fell far less than peers in 2018–20 and 2022.

6. Weaknesses / Risks

1. Underperformance in pure small-cap bull runs – because of lower small-cap purity and high diversification (happened in 2020–21 and 2023–early 2024).
2. Very low IT & chemicals – missed big part of 2023–2025 small-cap rally.
3. 235 stocks → some holdings are tiny (0.01–0.05%) – operational drag, though impact is negligible.
4. Slightly higher exposure to PSU names (BHEL, NLC, HAL, etc.) – can be sentiment-driven.

7. Who Should Invest?

Ideal for:

• Investors who want small-cap exposure but are worried about 50–70% drawdowns.
• First-time small-cap investors.
• Those who believe Indian capex/defence/power theme has legs for 5–7 years.
• Long-term SIP investors (5–10 years+).

Not ideal for:

• Aggressive investors chasing 30–40% CAGR who are okay with huge volatility.
• Anyone wanting a “pure” small-cap fund that will top charts in bull markets.

Final Verdict (as of Dec 2025)

Nippon India Small Cap is the lowest-risk, most resilient small-cap fund in India today because of its unique combination of:

• Ultra-diversification
• Large-cap buffer
• Low single-stock exposure
• Heavy capital-goods + defensive staples mix

It will rarely top the category in bull markets, but it has an excellent chance of being in the top half over full market cycles with significantly lower drawdowns than peers.

If your primary concern is “not losing too much money when small-caps correct”, this remains the single best small-cap fund available in India.