ICICI Bank’s share price declined slightly after its recent decision to increase its minimum balance requirement to ₹50,000. Will it impact the performance of Aditya Birla Large Cap Fund, which holds a significant stake in the bank? Such short-term events are often “just noise” and rarely change their fundamental view, unless they indicate a more significant structural shift that could affect deposit growth, credit expansion, asset quality, or long-term profitability, Mahesh Patil, chief investment officer of Aditya Birla Sun Life AMC Limited, tells Fortune India in an interview. “If a price movement is sentiment-driven, we might tweak the portfolio weight.

But we generally avoid knee-jerk exits,” he says. “Only when our long-term assumptions are meaningfully challenged, then we reassess and adjust our exposure.”

Patil also highlights that large-cap funds continue to be among the most reliable choices for investors in uncertain markets. Edited excerpts:

With an AUM of around ₹30,000 crore and a long track record, how do you manage liquidity management and portfolio positioning approach, particularly when balancing stability with generating alpha returns?

If I look at my large-cap fund, around 80% of the corpus is invested in the Top 100 companies by market-cap. These are highly liquid, and most are part of the F&O segment, which provides us with flexibility and liquidity. If liquidity becomes a constraint when buying or selling, we use futures and options to manage the impact of costs.

The portfolio is well-diversified; we limit the maximum active weight in a single stock to 2% (with an internal ceiling of 4%). Approximately 10-15% of the portfolio is allocated to mid- and small-cap stocks to generate alpha; however, we cap individual exposure at 1% of the corpus to manage liquidity risk.

How has your fund performed across past market cycles compared to top peers, especially given the differences in AUM?

We manage around ₹30,000 crore, making us one of the larger funds in this category. Over the last five years, which included the Covid-19 crash, a sharp recovery, and a softer recent market, our goal has been to consistently stay above the category average.

We often finish in the upper second quartile of performance—doing well in bull markets without being overly aggressive and protecting capital in bear phases. This consistency should enable us to rank in the top quartile over the next 10 years.

In the past month, the performance of your fund dipped slightly despite earlier growth. Why?

Short-term performance changes are often linked to fluctuations in individual stock prices. For example, PNB Housing Finance, which had only a 0.8% weight in our portfolio, experienced a sharp decline following its CEO's resignation. Such idiosyncratic events can temporarily affect returns, but we focus on rolling one-year performance rather than reacting to one- or three-month moves.

What is the core investment philosophy driving the Aditya Birla Sun Life Large Cap Fund, and how consistently has this strategy been applied over time?

We combine top-down macro views with bottom-up stock selection. Sector weight deviations from the benchmark are capped at ±5 %.

The portfolio is built in three parts:

For instance, the first part is benchmark sleeve (around 40%). These are top benchmark stocks to manage market beta.

Second we have Alpha sleeve (around 40%). Large-cap companies within the benchmark but outside the top 10-15 stocks, chosen for higher growth, strong returns on capital (15%+), and reasonable valuations.

Third is Mid- & small-caps (10-15%). This is for bottom-up picks for higher absolute returns. We have a slight growth bias but include value opportunities when they arise, aiming for a consistent 1-2% outperformance over the benchmark each year.

What are the key challenges in maintaining outperformance within the large-cap category today? How is the fund navigating them?

There are four  key challenges: benchmark concentration, peer aggression, short-term noise, and discipline.

First is benchmark concentration. Large weights, such as those held by Reliance or HDFC Bank, can significantly influence results. We avoid going significantly underweight in such names.

Second is peer aggression. Some funds take huge sector bets that boost short-term performance but increase downside risk.

Thirsd is to avoid short-term noise. We refrain from reacting to minor news unless it significantly impacts a company’s fundamentals.

Fourth is to maintain discipline. If a stock trades significantly above our target, we book profits to mitigate mean reversion risk.

How do you avoid herd mentality when peers hold certain stocks?

We track peer portfolios, especially when they hold large positions we don’t. This triggers a deeper review of those companies to validate our stance.

If our negative view appears risky in light of market trends, we may take a small position as a risk control measure, but we never buy simply because our peers do. In rare cases, as with some earlier misses, we have re-entered stocks later at prices we found justified.

What is your fund’s biggest strength? Why should investors choose the fund?

Our biggest strength is consistency. Over the last 20 years, we have beaten the peer average in more than 14 calendar years. This matters because investors enter at different market points, and we want all of them to have a positive experience.

In a category competing with ETFs and passive funds, our aim is steady benchmark outperformance with low variability. Large-cap stocks offer resilience in downturns, reasonable current valuations, and strong long-term compounding potential. A disciplined investment in a large-cap fund that can outperform its benchmark by 1-2% annually should make a compelling choice for long-term investors.