After months of maintaining a conservative view on equities, DSP Mutual Fund has turned bullish following the sharp market fall on 23 March 2026.
Indian markets corrected significantly amid the ongoing US-Israel-Iran war, before recovering slightly on expectations of possible de-escalation. Against this backdrop, DSP MF released a rare ad hoc note upgrading its stance on equities and recommending increased exposure—particularly in .
In an interaction with Mint, Sahil Kapoor, head-products and markets strategist, DSP Mutual Fund, explains why he believes the current setup offers a contrarian opportunity.
What is your current outlook on markets?
We recently put out an ad hoc update, which is quite rare for us. The trigger was that markets had hit several extremes at the same time.
A number of private banks, IT companies, some FMCG names and housing finance firms, were trading at valuations last seen during the global financial crisis. Many others were at or below their long-term average valuations. Together, this segment makes up roughly 50% of the market.
At these levels, investors can build a portfolio with a potential return on equity profile of 15–16% or more, while paying valuation multiples of around 17 times or lower. This is happening at a time when earnings growth itself is quite subdued at about 8–10%, which makes the opportunity even more compelling.
At the same time, several market indicators are showing extreme readings. Only a small proportion of stocks are trading above their 200-day and 50-day moving averages, and macro indicators such as the balance of payments are also weak. When you see such a combination of valuation comfort and pessimistic signals, it creates for a contrarian opportunity. That is why we are now recommending an increase in , particularly in large-caps.
How do you see rising oil prices impacting India and the markets?
Oil is one variable that nobody can predict with certainty. Over the years, we’ve seen prices behave in ways that were completely unexpected, including turning negative at one point. So the starting point is to accept that it is inherently unpredictable.
That said, there are a few important observations right now. Even after several weeks of geopolitical tensions, have not sustainably crossed the $120 mark. This suggests that the kind of severe energy shock many feared has not fully materialized.
The key reason is that there is still a significant amount of oil supply globally. The current situation is more of a supply chain disruption rather than an actual shortage of oil. Some countries are facing issues because of the unavailability of refined products or unavailability of oil to refine, but that is different from a structural supply deficit.
If you look at futures markets, there is no clear sign of panic. Prices have actually softened week on week, and benchmarks like Murban crude have actually corrected this week. This tells you that the market itself is not pricing in a runaway spike in oil right now.
For India, this means there could be some macro pressure, but not necessarily a crisis. As long as oil prices do not stay above $120 for an extended period, the economy should be able to absorb the impact.
What is your view on small and mid-cap stocks at this point?
Valuations in the small and mid-cap space have corrected to some extent. Earlier, only about a quarter of the stocks in this segment offered reasonable valuation comfort. Now that number has risen to around 40%.
However, that does not mean the space is broadly cheap. Many stocks are still trading above their long-term average valuations. So while the situation has improved, it is not yet a market where you can buy indiscriminately.
This is an environment where stock selection becomes critical. Investors should rely on active managers who focus on valuation discipline and the quality of businesses. The margin for error is lower.
When you have high-quality large-cap companies available at very attractive valuations, it naturally reduces the need to take excessive risks in smaller companies. That is the way I would think about allocation right now.
Which sectors are you currently positive on?
Within financials, we like private banks, housing finance companies and insurance. These are areas where valuations have become particularly attractive relative to their long-term potential.
Outside financials, there are opportunities in specialty chemicals, but those require a bottom-up approach rather than a broad sector call. In FMCG and staples, most large companies remain expensive, but there are pockets where valuations have become more reasonable.
There are also selective opportunities in areas like gas distribution and certain energy segments. Overall, there is enough breadth in the market to construct a well-diversified portfolio, provided one is selective.
What strategy should investors adopt right now?
The best approach in this environment is to remain diversified. Multi-asset strategies make a lot of sense, especially those with a tilt towards equities given the valuation comfort in large caps.
Aggressive are also a good option, as they combine equity exposure with debt, providing a more balanced risk profile. Interestingly, even debt looks attractive at the moment because the spread between the 10-year g-sec yield and the repo rate is wide, making duration strategies appealing.
So a combination of equity, particularly large caps, along with exposure to hybrid or multi-asset strategies, is a sensible way to position portfolios in the current market.