According to the latest market outlook report by DSP Mutual Fund, Indian equities may be entering a more constructive phase after recent corrections. The report highlights that benchmark indices are now trading closer to historical averages, creating a more favourable entry point for investors. As reported by The Hindu BusinessLine, valuations are now between fair and average, with the fund house noting it is prudent to start raising equity weights while the market is falling and moving closer to fair value.
The outlook is particularly constructive on large-cap stocks, where valuations have corrected meaningfully according to the DSP MF report. According to the fund house, large caps have become much more attractive, not only in terms of price levels, but also because the large-cap cohort offers much better ROEs and a similar earnings trajectory. The report emphasizes that extended drawdowns have often preceded strong recoveries, reinforcing the case for gradual allocation in large-cap segments.
On benchmark trends, DSP Mutual Fund reported that the Nifty's trailing price-to-earnings multiple has fallen below 20x, around its long-term average of 18.9x. However, the fund house clarified that markets are not outright cheap yet, stating that 'Is 18.9x cheap? Not really... the index is between fair and average valuations'. As reported by The Hindu BusinessLine, this moderation in valuation metrics provides a good opportunity for gradual equity allocation increases.
In contrast to large-cap opportunities, DSP Mutual Fund advises caution in the small- and mid-cap segments, where valuations, though moderating, remain elevated relative to long-term averages. According to the report, caution is advised in the small- and mid-cap segments, where valuations, though moderating, remain elevated relative to long-term averages. The fund house recommends selective exposure via active management strategies focused on quality and valuations in these segments.
The broader message for investors emphasizes behavioural discipline during volatile phases, with the report suggesting that panic-selling days should be used to add to equity exposure. As reported by The Hindu BusinessLine, the fund house noted that fear-driven markets often create opportunities for long-term investors, recommending a calibrated increase in equity exposure with a bias toward high-quality large-cap names while maintaining a measured approach to broader markets.
