Expert view: Sahil Kapoor, Market Strategist and Head of Products at DSP Mutual Fund, believes the recent correction has provided ample opportunities in the large-cap space to build a long-term portfolio. In an interview with Mint, Kapoor said private banks, autos, and healthcare are some themes where valuations and quality are aligned. Edited excerpts:
The Middle East conflict has raised risks of monetary tightening and earnings cuts. Do you believe these worries are valid or misplaced?
This is valid as a tail risk. But misplaced as a base case. The real risk is not a spike in oil for a few days, it is oil staying above $120 for long enough to hurt India’s CAD, the rupee, liquidity and inflation.
That is not what the data suggests today.
Oil prices have fallen below pre-war levels, while services and remittances continue to provide a large external cushion.
FY27’s BoP now looks more like a support than a stress. Earning cuts can happen in oil-sensitive pockets, but a broad macro tightening cycle looks unlikely unless oil prices, the rupee, and food inflation all worsen together.
Markets usually look through any disruption which is short-term in nature, for a quarter or a few. It doesn’t pay too much attention unless the risks persist for a longer duration.
For now, these risks have turned. India’s balance of payment may surprise positively in FY27.
How do you see the market setup for H2CY26 after an 8% drop in the first half? Are there any risks that investors should not overlook?
We don’t have forecasts or special insights into the next six months. Markets are, by design, unpredictable in the short term.
The recent correction has provided ample opportunity, especially in the large-cap space, to build a credible long-term portfolio and continue allocating to equities.
If the market recovers, can small-caps fare better than the large-caps due to limited exposure of FPIs to the segment?
Flows of any kind should not be the reason or hypothesis of investment.
Corporate earnings are the key driver of stock market returns. Excessive focus on institutional and retail flows is not needed for investors looking to create long-term wealth from equities.
They should be primarily concerned with the price they are paying for the assets they are buying.
What should be our short and medium-term investment strategy?
We don’t have a short-term investment strategy. Our focus is on finding opportunities where valuations provide a calculable margin of safety.
Corporate balance sheets are clean, banks are healthier, and the system is well-positioned to fund growth.
The missing ingredient is better demand visibility and stronger revenue growth.
We remain focused on finding opportunities in sectors and stocks with reasonable valuations and improving revenue growth.
What are the themes that you would want to bet on at this time?
A few areas where valuations and quality are aligned include private banks, consumer discretionary, such as autos, healthcare and government bonds of longer duration.
How serious is El Niño as a threat to the Indian economy now?
It is serious enough to monitor. Not serious enough to extrapolate into automatic inflation and tightening.
India is less rain-fragile today. Irrigation now covers about 55% of the gross cropped area, up from roughly 40% in FY11.
Gross cropped area is up from 201 mn hectares in FY14 to 218 mn hectares in FY24, and cropping intensity is up from 143% to 157%. History is noisy: 2002 had a major monsoon deficit but only 1.2% food inflation; 2009 had similar rainfall stress but 18.8% food inflation.
A weak monsoon can impact growth if the government and private expenditure do not compensate. It becomes an inflation risk only if inventories, imports, the currency, oil prices and the policy response fail together.
Is it worth looking at rupee assets and bond investments at this time when the outlook for equities is improving?
Yes. This is not equities versus bonds. It is about rupee assets versus exaggerated pessimism. Large-cap equities and duration bonds both look useful.
The rupee REER is in a stress zone, the inflation differential has narrowed, FPI selling has been heavy, and 10-year G-sec yields still look high relative to inflation, growth and balance-sheet stress.
If growth revives and yields fall, duration bonds can benefit portfolios. If sales growth improves, large-cap equities can benefit portfolios. Own both selectively.
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Disclaimer: This article is for educational purposes only and does not constitute investment advice. The views and recommendations expressed are those of the expert, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.
