The Indian stock market faces significant headwinds with market benchmarks Sensex and Nifty 50 dropping up to 14% from their peaks as of April 6, according to reports from Mint. However, DSP Asset Managers believes this correction may present an opportunity for strategic equity exposure increases. The asset management company notes that large-cap valuations are now close to long-term averages, with major sectors including banking, IT, healthcare, insurance, housing finance, and select FMCG accounting for more than half the market cap trading at or below long-term valuations. Latest data from DSP MF shows that the top 10 largest stocks in India are available at or below their average valuations, with 80% of these stocks having a return on equity (ROE) at par or above average levels, suggesting that fundamentals are holding up even if sentiment remains weak.
According to DSP Asset Managers as reported by Mint, the Nifty's trailing price-to-earnings multiple has fallen below 20 times, reaching 19 times on Q4FY26 estimates, which is around its long-term average of 18.9 times. The AMC estimates that at a 16% return on equity and 10-12% earnings growth, the index should trade at 16.5 times to 18 times, indicating current valuations are between fair and average levels. On a percentile basis, the P/E of Nifty Top 10 Equal Weight Index stands at the 17th percentile, a level last observed in 2016 and 2020 — periods marked by heightened pessimism and muted growth expectations — as reported by Mint. This compressed valuation environment has historically coincided with periods where timing doesn't matter as much for patient investors.
As reported by Mint, only 18% of Nifty 500 stocks are above their 200-day moving average, while only 13% are above their 50-day moving average, approaching extremes though not at absolute extremes. The bond yield to earnings yield gap stands at just 1%, which DSP Asset Managers describes as an attractive zone for owning stocks, having been meaningfully better only during full-blown market panics. The India VIX surged to its 52-week high of 28.91 on March 30, indicating panic among market participants. Despite foreign institutional investors (FIIs) offloading $12.7 billion in March alone, large-cap stocks have displayed remarkable resilience with "normal impact costs and no jumps in trading activity," as noted by DSP Mutual Fund. According to The Economic Times, a Gujarat-based investor who shifted from fixed deposits to equity mutual funds is experiencing initial losses but shows courage to continue investing, reflecting growing understanding of market behavior.
According to Mint reports, the ongoing US-Iran conflict and resulting crude oil price surge remain key variables affecting short to medium-term market trends. While hopes exist that the war may end within two to three weeks, fresh aggression from US President Donald Trump and uncertainty about the Strait of Hormuz reopening keep investors cautious. DSP Asset Managers notes that the Nifty 50 has not fallen more than 20% in the last six years except during the COVID-induced crash, with the current drawdown from peak at only 15.5%. Data shows that 30 of Nifty 50 stocks have lost 5% or more in the last one month, with the sharpest drawdown seen of 15% in IndusInd Bank, yet valuations of these large-cap stocks have quietly drifted towards historically depressed levels.
DSP Asset Managers has dropped its conservative stance on equities, suggesting a moderate increase in equity allocation amid the current correction. The AMC emphasizes that "it is prudent to start raising equity weights while the market is falling and moving closer to fair value. Each incremental addition of capital buys more units of equity. A preset course of action in such phases is the best way to increase exposure." As reported by Mint, the real challenge for investors is "behavioural, not analytical" when investor narratives are unfavorable, but disciplined allocation becomes rewarding during such phases. Historical data shows that only 7 episodes lasted four months or longer, with the longest being an 8-month run from September 1994 to April 1995, and across completed cases, the average return was 12.2% over three months, 22.4% over six months, and 40.7% over one year. According to The Economic Times, experts advise that new investors transitioning from fixed deposits should focus on asset allocation across market caps rather than changing existing sound funds, with additional investments channeled into current flexi-cap and multi-cap schemes.
