Highlighting a clear inflection point, he pointed to nine fresh signals that suggest the ongoing correction offers a compelling opportunity to gradually increase equity exposure in a measured manner.
1.) Valuations, particularly in large caps, have eased with the Nifty at 22,500 and are now close to long-term averages. Key sectors such as banks, IT, healthcare, insurance, housing finance and select FMCG names, which together make up more than half the market cap, are trading at or below their historical valuations.
2.) Several largecap companies with return on equity of 15% to 16% are available at multiples below 17x. Even with current earnings growth of 10% to 12%, these stocks offer a reasonable case for allocation, with potential to outperform bonds when earnings cycles improve.
3.) A more cautious approach is warranted in SMIDs. Allocations here are better routed through active managers with a strong focus on valuation and quality, preferably through a SIP route.
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4.) The gap between bond yields and earnings yield has narrowed to around 1%, a zone that has historically been favourable for equities. Such conditions typically become more attractive only during extreme market stress, such as the COVID crash or the 2008 global financial crisis.
5.) India VIX moved above 25 and has begun to ease, indicating that a meaningful degree of panic has already been priced into the market.6.) Market breadth indicators point to oversold conditions. Only about 15% of Nifty 500 stocks are trading above their 200-day moving average, while just 11% are above their 50-day average, levels that are nearing extreme readings.
7.) The Indian rupee, based on REER, is currently at oversold levels. REER stands for real effect exchange rate. It measures the value of a country’s currency against a basket of other major currencies, adjusted for inflation. In simple terms, it shows whether a currency is overvalued or undervalued relative to its trading partners.
8.) Indian government securities are trading at a spread of around 160 basis points over the repo rate, which limits the room for further upward movement in rates.
9.) A more aggressive opportunity to add equities could emerge once valuations in SMIDs also turn attractive. For now, the environment supports a gradual increase in equity allocation.
Why this matters?
Benchmark indices Sensex and Nifty have come under sharp pressure recently, sliding around 10% over the past month as escalating tensions between Iran and the US-Israel axis drove oil prices above the $100 per barrel mark for the first time since Russia’s 2022 invasion of Ukraine.
The selloff on Dalal Street has eroded more than Rs 48 lakh crore in market capitalisation so far in March, with the total value of BSE-listed companies dropping to around Rs 415 lakh crore by the close of trade on Monday.
However, markets staged a partial recovery today after U.S. President Donald Trump said Washington and Tehran had held “very good and productive conversations” over the past two days toward a “complete and total resolution” of the ongoing hostilities in the Middle East.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)