According to Abhishek Singh, senior vice president and Fund Manager at DSP Mutual Fund, the oil and gas sector is experiencing a unique valuation dynamic that presents investment opportunities. As reported by NDTV Profit, Singh noted that downstream companies are pricing in elevated oil prices, while upstream companies are pricing in low oil prices. This contrasting approach creates an argument for owning the entire oil and gas sector basket rather than picking individual winners or losers.
Singh explained that oil prices and the Middle East war scenario have been so volatile that markets have almost become numb to the noise and headlines. According to the fund manager's assessment, the situation will eventually settle, and the oil and gas sector could perform well given current valuations. As reported by NDTV Profit, this volatility has created a situation where investors must take a long-term view and expect the market to eventually stabilize.
The oil and gas sector comprises two distinct categories with different operational focuses. Upstream companies such as ONGC and Oil India are primarily engaged in finding and producing crude oil and natural gas, while downstream companies including Indian Oil Corporation, Bharat Petroleum Corporation and Hindustan Petroleum Corporation are exposed to refining and marketing of petroleum products. As reported by NDTV Profit, this structural difference in business models contributes to the current valuation contrast.
On interest rates, Singh indicated that India is probably at the end of the rate-cut cycle, though a rate hike may not be seen any time soon unless global central banks, particularly the US Federal Reserve, start raising rates. According to the fund manager's analysis, investors should consider what happens if rates do rise, particularly regarding commercial real estate and REITs, which could offer attractive entry points during any correction. As reported by NDTV Profit, Singh also noted he did not expect the recent outperformance of mid- and small-cap stocks, believing large caps would manage volatility better.
Singh emphasized that as global uncertainty continues, individual investors should focus on diversified exposure rather than trying to time rotations between market segments. According to the fund manager's recommendation, he favours taking diversified exposure across a few good managers and allowing them to manage transitions in a tax-efficient manner. As reported by NDTV Profit, Singh highlighted that the tax aspect is underrated, noting that self-executed rotations can result in capital gains tax outgo every time.
