Newspaper Summary - 050726

     Top IT stocks stare at great valuation reset PREMIUM PUZZLE. While Indian IT valuation premium currently ranges from 40-80% over Accenture, the earnings growth outlook lacks the same optimism

Kumar Shankar Roy & Hari Viswanath

Welcome to the new guessing game in town, that is, ‘Are IT stocks cheap?’. The debate has been raging for the last six months and each time it appears cheap enough, another blow knocks it lower. A few weeks back it was Accenture’s disappointing outlook that triggered a correction. Last week it was KPIT Tech’s negative pre-announcement that saw the stock crash around 25 per cent.

After a 30 per cent correction in the Nifty IT index over the past year, the sector’s valuation multiples have compressed sharply. On trailing earnings, the index is now around 18 times, a level that looks modest compared with its own multi-year averages. On the face of it that sounds like a classic valuation reset. The more uncomfortable question is whether this reset is full, or halfway through.

Look at the Big Four. TCS, Infosys and Wipro now trade around 14-15 times trailing earnings, while HCL Technologies is slightly higher at 18 times Price-to-Earnings (P/E). These numbers look sober when compared with the post-Covid boom excesses (broadly 30-40x).

That phase has clearly ended. TCS’ P/E has more than halved from a peak of about 42 times to around 15. Ditto for Infosys, which has slipped from about 38 times to 15. Wipro has moved from about 32 times to 14. HCLTech, too, is down from its peak (32x). So, yes, the market has done some cleaning up. The problem is that the cupboard may not yet be fully ship-shape.

This is not a sudden change in stance. bl.portfolio has been cautious on Indian IT for about three years, arguing that the sector’s post-Covid valuation premium was running ahead of earnings reality. In our February 8 edition, after the latest AI scare hit IT stocks, we had noted that investors should not view corrections as a buy-the-dip opportunity.

The historical comparison is revealing. TCS, Infosys and Wipro are now below their pre-Covid P/E levels. That gives bulls a decent argument; the froth has gone, businesses remain cash-rich, payout yields are attractive, and any improvement in demand can trigger a sharp rebound.

Bears have an equally simple question: If these companies are no longer growing like premium compounders, why should they be considered cheap?

INCONVENIENT FACTS In our article titled ‘Accenture sets the tone for IT stocks’ (bl.portfolio of April 28, 2024), we had explained why Indian IT stocks’ valuation cannot decouple from the valuation of global IT stocks like Accenture.

Today, Accenture, trading at 10x the trailing P/E, becomes the inconvenient global mirror. A gold standard in IT services and consulting globally, its valuation, earnings expectations and demand commentary matter. In the pre-Covid decade, Accenture used to trade at a premium to TCS (which, in turn, used to trade at a premium to Infosys, HCL Tech and Wipro). Bear in mind that Accenture has significantly outperformed its peers, clocking a 10 per cent USD EPS CAGR for the FY16-26 period, comfortably outpacing the growth rates of HCL Tech, Infosys and TCS (all 6 per cent CAGR), and Wipro (3 per cent CAGR). Even after factoring for currency benefit, the EPS CAGR for Indian peers at 7-9 per cent CAGR is below Accenture.

While Accenture’s margins are lower than TCS, its larger scale and higher revenue share from high-end business used to garner it a premium over Indian IT. Post Covid, the valuation math has changed. Today, the valuation premium of Wipro, Infosys, TCS and HCL Tech at 39 per cent, 46 per cent, 53 per cent and 84 per cent, respectively, appears unjustifiable. This implies whenever IT stocks rebound, Accenture is likely to outperform Indian peers.

The basic issue is simpler: Are Indian IT companies expected to grow materially faster than Accenture? For Accenture, one-year forward consensus PAT growth is about 6 per cent. For TCS, Infosys, and Wipro, the corresponding numbers are 8 per cent, 4.7 per cent, and 9.5 per cent aided by currency depreciation. Now, the premium question becomes less emotional and more arithmetic.

The other inconvenient fact is growth. Stocks are cheap when one looks at the information in the rear-view mirror or against their own historical valuation, but are they cheap when one looks at data in front? With the industry in the midst of a once-in-a-generation AI disruption, the future growth rate is entirely unpredictable, making any valuation exercise, for now, largely speculative. While a case can be made on the payout ratios with trailing dividend yield, say, for companies like TCS at 5.2 per cent, there may be a situation in future where if companies need to deliver on growth they will have to invest, impacting dividends.

In this context, mid-cap IT offers a sharper warning. Even after correction, several names still trade at premium valuations. Persistent, Coforge and Mphasis trade in a 30-40x trailing PE band. KPIT Tech’s more than 15 per cent single-day fall on July 1 showed what happens when the market starts questioning the extra-growth story. The stock is still trading near 25x. Others like Tata Elxsi trade at 35x even after a 41 per cent correction over the last one year.

Has the market already priced in the pain, or is it merely rediscovering that even great companies need growth to deserve great multiples? That is the $250-billion-dollar (Nifty IT total m-cap) question right now.

FPIs turn net buyers, pump in ₹16,461 cr this week

Anupama Ghosh Mumbai

Foreign portfolio investors (FPIs) turned net buyers in Indian markets during the week ended July 3, pumping in a net ₹16,461.84 crore across equity, debt and hybrid instruments over all five trading sessions, according to data from the National Securities Depository Limited (NSDL). The week, which began with the final two sessions of June before transitioning into July, saw net inflows on each trading day.

FPIs recorded their highest single-session investment of the week on June 29 at ₹5,986.33 crore, followed by ₹4,334.95 crore on June 30. In July, net inflows stood at ₹552.98 crore. This performance contrasts with the broader trend in June, when FPIs remained net sellers in equities. During the month, they pulled out ₹49,340.45 crore from equities through stock exchanges and the primary market combined.

However, debt markets attracted robust flows, with FPIs investing ₹30,620.28 crore under the General Limit, ₹21,652.09 crore through the Fully Accessible Route (FAR), and ₹3,246.04 crore under the Voluntary Retention Route (VRR). Overall, June ended with a net FPI inflow of ₹4,668.86 crore across all asset classes.

STEEP YTD OUTFLOWS “The highlight of the June FPI activity is the significant tapering of FPI selling and their buying for a few sessions,” noted analysts. Despite the recent buying, FPIs remain heavy net sellers in 2026. As of July 3, cumulative net outflows across all asset classes stood at ₹2,12,872.28 crore. Equities bore the brunt of the selling, with net outflows of ₹2,74,272.90 crore through the secondary and primary markets combined.

“The total FPI selling for 2026 till the end of June stands at ₹2,94,387 crore through stock exchanges,” [analyst] Vijayakumar said. “Since FPIs invested ₹20,114 crore through the primary market, the net FPI outflow this year through June-end stood at ₹2,74,272 crore”.

CRUDE, RE AND RAINS Market participants are now tracking a mix of domestic and global factors. “A crash in crude prices to below $72/barrel and the large inflows expected from FCNR(B) deposits will significantly reduce India’s balance of payments deficit,” he said. “This will help the rupee stabilise and even appreciate, which, in turn, will prevent large FPI selling”.

Analysts also expect institutional flows to remain sensitive to the progress of the monsoon, given its implications for rural demand and inflation, as well as the unfolding Q1FY27 earnings season. Global cues, including developments in US-Iran negotiations, crude oil prices and the minutes of the US Federal Reserve’s June policy meeting will also shape investor sentiment.

Clouded under El Nino skies

RAIN OR SHINE? With the El Nino event confirmed by several global weather agencies, the fear seems real now. Here’s a look at how it could impact agriculture, allied sectors and markets, should there be a weak monsoon this year.

Nalinakanthi V & Nagaragopal

Come May, one event that is most-awaited and tracked by India Inc and investors is the onset of the South-West monsoon and its progression. The 2026 South-West monsoon season has opened on a weak note, with the country recording a 40 per cent deficient rainfall in June. However, the IMD expects monsoon to progress, beginning this week. One word that is frequently making the headlines is El Nino. And with several global weather agencies having confirmed the event, the fear seems real now. But is El Nino something investors should really worry about?

For those who are unfamiliar with the Spanish word, it basically denotes the adverse changes (rapid increase) in the sea-surface temperature (SST) over central and eastern Pacific region. This affects the trade wind formation and movement, eventually resulting in below-normal rainfall in Australia and South-East Asian regions such as Indonesia and also has an impact on India’s monsoon rainfall. But an El Nino event does not necessarily spell doom. Much depends on its timing. If conditions intensify only after September, the impact on India is likely to be limited, as the South-West monsoon accounts for nearly two-thirds of the country's annual rainfall.

The intensity of the El Nino event is very crucial. The Nino 3.4 Index, in addition to trade winds, atmospheric response and sub-surface ocean temperatures, is the basis for ascertaining the event. If the SST value is above 0.5 for five consecutive three-month overlapping seasons, then it’s a weak El Nino. An SST value between 0.5 and 1.5 implies a moderate El Nino; while any value above 1.5 indicates a stronger event. We have had two El Nino episodes in the last three decades — 2015 and 2023. But in 2015, which is considered moderate El Nino, the overall rainfall deficit was 12.7 of the Long period Average (LPA). Interestingly, in 2009, which was a drought year, the SST values during the season were under 0.5, indicating a no El Nino year. Likewise, 2014, too, was not an El Nino year.

It is clear that El Nino is not the only reason for a poor monsoon. Indian Ocean Dipole (IOD) is a climate phenomenon caused by variations in sea temperatures in the Indian Ocean. Its positive, negative and neutral phases can influence the Indian monsoon. A positive IOD brings good rainfall to India, while a negative IOD results in lower seasonal rainfall. Other factors include Madden Julien Oscillation (MJO), more of a short-term phenomenon lasting for about 60 days, unlike an IOD or El Nino, which last for several months.

CURRENT STATUS As per SST data published by the IMD, the SST value was -0.1 for the March-May period, which is an increase from -0.9 in the December-February period. However, as per the latest data released by Columbia Climate school, the SST anomaly measured using Nino 3.4 Index, which was at 0.48 degree Celsius in March-May period, has increased swiftly to 0.94 degree Celsius by May and further increased to 1.7 by June 17. This indicates a strong possibility of a moderate-to-severe El Nino event this season. Multiple agencies, including National Oceanic and Atmospheric Administration, have confirmed the El Nino event.

The IOD, which was positive to neutral at the start of the year, is now showing a swing towards negative zone — with the May IOD at -0.39 in the IMD website. MJO is possibly not presenting clear indications yet. However, the IMD has indicated widespread rainfall this week, supported by formation of a ‘low’. While the rainfall progress in July remains extremely crucial, the Indian government has launched an emergency plan to protect crops in 315 districts with irrigation infrastructure gaps and significant deficiency in rainfall and the farming community is preparing itself for the worst. The government is helping the farming community to navigate this phase by shifting to crops, such as millets and pulses, which can thrive on less water, use of climate-resistant and short-duration crops, etc.

FOODGRAIN PRODUCTION The impact of a weak monsoon is visible, either through flattish output or a marginal decline in output during the years when the monsoon has been below normal. For instance, in 2009-10, which followed the 2009 drought year, foodgrain production slipped 7 per cent. In the following years — 2014 and 2015 — production was lower by 4.9 per cent and 0.2 per cent, respectively. Similarly, in 2019, when the rainfall was a tad lower, the growth in foodgrain production was flat. As foodgrain production is highly sensitive to monsoon rainfall, this needs to be closely monitored. Meaningful improvement in rainfall will be crucial to keeping food inflation under check. Levels of farm income and food inflation are two important variables that have a bearing on economy and interest rates and thereby on the markets.

However, India has, over the last three decades, managed to increase the area under irrigation — from 33.6 per cent in 1990-91 to 39 per cent by 2001 and 59 per cent by 2023. States such as Punjab and Tamil Nadu have seen significant improvement in the irrigation penetration, while Maharashtra continues to be significantly dependent on the monsoon, making it more vulnerable, given that the State is a key producer of sugarcane and cotton.

SECTORS THAT NEED TO BE WATCHED While conventional wisdom suggests that agri and allied sectors may be the first casualty of a weak monsoon, historical data show resilience. For instance, fertilizer sales have remained strong even during weak monsoon years. During the drought year of 2009, fertilizer consumption grew 6.4 per cent year-on-year. Similarly, in 2014 and 2015, fertilizer sales grew 4.5 per cent and 4.3 per cent, respectively. This is largely because purchases typically happen ahead of the season and high government subsidies on urea and complex fertilizers support consumption. Stocks such as Chambal Fertilisers and Chemicals, and Coromandel International have delivered healthy gains irrespective of monsoon concerns.

However, the significant jump in input costs for the sector due to the US-Iran war could result in an increase in working capital needs and impact profitability. Sulphur has risen from $350 per tonne in 2025 to almost $850 per tonne in 2026. The cost of anhydrous ammonia and global gas prices have also witnessed sharp rises.

Agrochemicals traditionally see some correlation to monsoon rainfall because only the purchase of preventive sprays happens ahead of the monsoon. The industry witnessed growth stagnation in 2014 and 2015 but staged a strong recovery after 2015. Input price hikes due to the US-Iran war may play spoilsport in the short term.

BENEFICIARIES Some sectors cheer a weak monsoon. Construction and building materials sectors share an inverse relationship with the South-West monsoon. A poor monsoon means uninterrupted construction activity and stronger demand for materials such as cement, steel, and paints. Mining also benefits, as activity typically remains lull during heavy rainfall. Power generation (coal and solar), which can be disrupted by monsoons, may see higher output if rainfall is lower than expected.

FARM INCOME Sectors riding the rural consumption wave, like two-wheeler producers and farm equipment makers, see tepid sales in years of lower agricultural output. FMCG companies with a significant share of revenues from rural markets also show a strong correlation with monsoon rainfall, though with a lag effect. For example, Hindustan Unilever reported flat revenues and an operating profit decline in FY16 after two consecutive weak monsoons. P&G Hygiene and Healthcare, Dabur, and Marico also saw revenue growth stagnate or mirror weak growth in these periods.

MONSOON AND INFLATION A weak monsoon affects food and beverage (F&B) consumer price inflation (CPI) with a one-year lag. After the weak 2023 monsoon, F&B monthly CPI shot up to a new high of over 10 per cent in 2024 and remained high until 2025. Sugar is another critical product; any reduction in cane acreage or yield due to a weak monsoon could risk domestic availability and India’s ambitious ethanol blending programme (EBP).

MONSOON AND MARKET India’s equity indices have historically remained unaffected by monsoon vagaries. The Nifty 50 Index has shown resilience, delivering positive returns during weak monsoon years like 2002, 2004, 2009, and 2023. The index composition, with significant weightage for banks, financial services, IT, oil & gas, and metals, is a key reason for this.

Overall, history indicates the impact of a weak El Nino monsoon is not broad-based and only affects a few sectors. However, current risks include inflation from reduced agri produce and consumption risks from falling rural incomes. Geopolitical situations, crude price volatility, and the weakening Indian rupee also need tracking by investors.

Bulls charge up

INDEX OUTLOOK. An inverted head and shoulder pattern on the charts of Nifty and Sensex reinforce the bullish case

By Gurumurthy K

Nifty 50 and Sensex have risen breaking above their intermediate resistance in line with our expectation. That keeps our overall bullish view intact. Both the indices were up about 0.9 per cent each last week. An inverted head and shoulder pattern is being formed on the daily chart, which strengthens the bullish case for both the Sensex and Nifty to go much higher in the coming weeks.

Nifty Bank index, on the other hand, has been stuck inside a narrow range for the third consecutive week. The index fell within the range and was down 0.4 per cent for the week. However, the bias remains positive, and the index is expected to make a bullish breakout of this range going forward. Among the sectors, the BSE Realty index surged the most last week, rising 7.8 per cent.

FPIs BUY

Foreign Portfolio Investors (FPIs) were net buyers of Indian equities for the third consecutive week, purchasing about $463 million last week. If FPIs accelerate their purchases in the coming weeks, it could further aid the Sensex and Nifty in moving higher.

NIFTY 50 (24,270.85)

• Short-term view: Nifty has broken above the resistance at 24,200. This move confirms a bullish inverted head and shoulder pattern on the daily chart. Immediate supports are at 24,200, 24,000, and 23,900. Nifty can rise to 24,750-24,800 from here, with a pattern target of 25,300. Only a decline below 23,900 would turn the near-term picture negative.
• Medium-term view: Nifty is moving within a broad 22,000-26,500 range and is expected to test the upper end in a couple of months. The long-term bias is positive, suggesting a potential breakout above 26,500 toward 28,000 or even 30,000.

NIFTY BANK (57,938.50)

• Short-term view: The index remains in a narrow range (56,800–58,800). A bullish breakout above 58,800 could take the index to 60,500 and 61,500. Conversely, breaking below 56,800 could lead to a fall to 56,000.
• Medium-term outlook: The broader outlook is bullish. A break above the 61,000-61,500 resistance region would open the way for a rise to 65,000 and eventually 68,000-69,000. Important supports are at 53,500 and 50,000.

SENSEX (77,763.91)

The resistance at 77,400 has been broken, keeping the bullish target of 78,800-79,000 intact. A strong rise above 79,000 will confirm the inverted head and shoulder pattern, targeting 81,000-81,500 in the coming weeks. Supports are at 77,400, 76,700, and 76,000. Decisively breaching 81,500 could clear the path toward 86,000 in the medium term and 90,000-94,000 in the long term.

NIFTY MIDCAP 150 (22,884.35)

The index has recovered from its low of 22,539. Supports are at 22,750 and 22,600, with resistance in the 23,200-23,300 region. A breakout above 23,300 could trigger a rally to 26,000-26,500 in the medium term and 28,000-28,500 in the long term.

NIFTY SMALLCAP 250 (17,996.25)

Support at 17,550 held firm as expected. The index is now testing the crucial resistance level of 18,300. A decisive breach of 18,300 could take the index to 22,500-23,000 in the medium term and 24,000-25,000 in the long term.

SHORT-TERM TARGETS

• Nifty 50: 24,750-24,800
• Sensex: 81,000-81,500
• Nifty Bank: 60,500-61,500

Crucial juncture

US MARKET OUTLOOK. The Dow Jones close to an important resistance

By Gurumurthy K

The Dow Jones Industrial Average, S&P 500, and the NASDAQ Composite Index have risen well last week. The Dow Jones has come close to its crucial resistance. The recovery in the S&P 500 and NASDAQ Composite looks shallow. Broadly, we prefer to remain cautious rather than being overly bullish on the US equities at the moment.

Here is an analysis on how the US markets can perform in the coming week:

DOW JONES (52,900.07)

The Dow Jones surged to a record high of 52,903.85 last week and has closed on a strong note. However, a crucial resistance is at 53,150, which will need a close watch this week. Failure to breach this hurdle and a subsequent fall below 52,000 will be bearish, indicating a top in place. In that case, the Dow Jones can fall back to 50,000-49,000 in the coming weeks. A sustained rise above 53,150 is needed to keep the upmove going; if that happens, then a rise to 55,000 is possible. We prefer to remain cautious rather than being overly bullish at the moment.

S&P 500 (7,483.25)

The S&P 500 index has risen back well and recovered almost all the loss made in the previous week. But the price action indicates the absence of strong buyers above 7,500. So, we will have to wait and watch the movement for a few days to get clarity. Even if the index goes above 7,500, it has to breach 7,600 decisively to gain bullish momentum.

NASDAQ COMPOSITE (25,832.67)

The resistance at 26,250 mentioned last week has held very well. The NASDAQ Composite index touched a high of 26,261 and has come down from there. Near-term support is at 25,600. A break below it can drag the index down to 25,000 again, potentially keeping the downside open to see 24,200-24,000 eventually in the coming weeks. The index has to rise past 26,250 in order to get some breather; only then is a rise to 27,000-27,500 possible.

DOLLAR INDEX (100.88)

Doubts have been raised that the US Federal Reserve will not be in a hurry to increase the interest rates immediately. On the charts, the picture remains positive. Supports for the dollar index are at 100.60 and 100.40, which are likely to limit the downside. We expect the dollar index to rise above 101 decisively and go up to 103 initially. That will also keep our medium-term bullish view intact to see 105-106 on the upside. The index has to decline below 100.40 to turn the short-term picture negative, which could lead to a fall to 99.50.

TREASURY YIELD

The US 10Yr Treasury Yield (4.49 per cent) has risen back sharply from its low of 4.36 per cent last week. Key resistances are at 4.5 per cent and 4.55 per cent. A decisive break above 4.55 per cent is needed to boost the bullish momentum.

The long game in IPO investing

FUND CALL. Edelweiss Recently Listed IPO Fund looks beyond listing gains, aiming to identify newly listed companies with the potential to become long-term market leaders

Dhuraivel Gunasekaran bl. research bureau

Investing in newly-listed companies can give investors early access to businesses with the potential for strong long-term growth. However, capturing these opportunities is not easy for retail investors. Identifying fundamentally-sound companies, securing allotment in often oversubscribed IPOs and staying invested through the inevitable volatility can be challenging.

The Edelweiss Recently Listed IPO Fund (ERLIF) seeks to address these challenges by investing in a curated portfolio of recently-listed companies through disciplined stock selection and long-term portfolio construction. Launched as the close-ended Edelweiss Maiden Opportunities Fund - Series 1 in 2018, the scheme was converted into an open-ended fund and renamed in June 2021. Over the last seven years, it has delivered a compounded annual growth rate (CAGR) of 19 per cent compared with 14 per cent for the Nifty 500 Total Return Index.

LONG-TERM INVESTMENT

Instead of seeking quick listing gains, the fund focuses on identifying businesses with the potential to emerge as long-term market leaders during their three-five year post-listing growth journey.

The fund’s investment universe is restricted to the 100 most-recently listed companies in India. Regulations require at least 80 per cent of the portfolio to remain invested in this universe, while the balance can be allocated to older IPOs that continue to offer attractive growth prospects. Over the last five years, the portfolio has typically held 42-58 stocks. It builds positions through anchor allocations, during the IPO process, immediately after listing or even several quarters later if valuations become attractive and business execution remains strong.

SCREENING FRAMEWORK

Not every IPO qualifies for investment. The fund excludes SME IPOs, pre-IPO investments, companies with a market capitalisation below ₹1,000 crore and IPOs with issue sizes below ₹500 crore. These filters seek to improve portfolio quality while reducing liquidity risk. Research begins once a company files its draft red herring prospectus (DRHP). The evaluation process includes management interactions, customer and supplier meetings, plant visits, financial analysis and valuation assessment.

The fund follows a selective approach rather than investing in every IPO. It invested in 55 of the 104 IPOs launched in 2025 and in eight of the 21 IPOs launched so far this year. Historically, its participation rate has ranged between 35 per cent and 55 per cent. Even if the primary market remains inactive for an extended period, the fund’s strategy is unlikely to be affected, as its investment universe comprises the 100 most-recently listed companies rather than only fresh IPOs.

About 60-70 per cent of the portfolio is allocated to secular growth businesses that benefit from long-term structural trends, possess competitive advantages and are expected to sustain earnings growth over extended periods. The remaining portfolio largely comprises cyclical businesses, where valuations become the key determinant. Since industry cycles can reverse quickly, the fund invests only when valuations provide an adequate margin of safety.

IPO companies often command premium valuations as investors price in their future growth potential. Reflecting this, the fund’s portfolio traded at a P/E of 59 times as of May 2026, well above the flexi-cap fund category average of 38 times. While valuation remains a key consideration, the fund balances it with business quality and long-term growth prospects rather than pursuing low valuations alone.

MID-, SMALL-CAP BIAS

The portfolio has a natural bias towards mid- and small-cap companies, reflecting the composition of India’s IPO market. Over the last five years, the fund’s average allocation to large-, mid- and small-cap stocks stood at 12 per cent, 20 per cent and 56 per cent respectively. Most investee companies typically have market capitalisations between ₹5,000 crore and ₹30,000 crore.

PORTFOLIO COMPOSITION

One distinguishing feature of the fund is its exposure to emerging sectors and business models. IPO cycles often mirror the changing structure of the economy. Depending on the listing pipeline, the portfolio may gain exposure to financial services, insurance, defence, pharmaceuticals, contract manufacturing, digital platforms and other fast-growing industries that remain underrepresented in traditional diversified funds.

Sector exposure is capped at 25 per cent. As of May 2026, pharmaceuticals (11 per cent), retailing (9 per cent) and capital markets (9 per cent) were the largest sector exposures. However, the sector mix changes significantly as new companies enter the investable universe and existing holdings are exited based on valuations and business prospects.

A bl.portfolio analysis of the fund’s portfolio since inception shows that investments in Polycab India, Dixon Technologies, Affle 3i, Laurus Labs and IRCTC generated multibagger returns. In contrast, investments in Ellenbarrie Industrial Gases, Shankara Building Products, DAM Capital Advisors, Quess Corp, Spandana Sphoorty Financial and FSN E-Commerce Ventures (Nykaa) destroyed investor wealth. This illustrates the fund’s high-risk, high-reward nature.

EXIT STRATEGY

Stocks are exited under three broad scenarios:

• When a better IPO opportunity emerges than the existing stocks.
• When a company achieves its growth potential earlier than expected and valuations leave limited upside.
• When it materially deviates from its IPO strategy or the original investment thesis no longer holds.

PERFORMANCE

The fund has delivered strong long-term performance. Since inception, its five-year rolling return has averaged 18.5 per cent CAGR compared with 17.5 per cent for the Nifty 500 TRI. Rolling returns ranged between 9 per cent and 26 per cent. On a three-year rolling basis, the fund generated an average CAGR of 19.3 per cent against 17.8 per cent for the Nifty 500 TRI. The regular plan carries an expense ratio of 1.9 per cent, while the direct plan’s expense ratio is 0.83 per cent.

TAKEAWAY

Apart from the Edelweiss IPO Fund, there are two recently-launched passive funds from Mirae Asset and Motilal Oswal, which track the BSE Select IPO Index. These have a limited track record of around one year.

The Edelweiss Recently Listed IPO Fund offers investors an opportunity to participate in the three-five year post-listing growth phase of newly-listed companies rather than pursuing short-term listing gains. However, the fund can underperform during market corrections or risk-off phases, as recently-listed companies tend to witness sharper valuation corrections than the broader market. Given its thematic mandate and significant exposure to mid- and small-cap companies, the fund is best suited as a satellite allocation. Investors looking for dedicated exposure can consider the fund through the systematic investment route with an investment horizon of at least five years.