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The Indian equity market remains on shaky ground, weighed down by both domestic and global factors. According to Rohit Singhania, Co-Head (Equities) at DSP Mutual Fund, this turbulence is likely to persist. Uncertain earnings forecasts, subdued demand and margin pressures make it difficult to predict a near-term rebound. However, Singhania is optimistic that clarity around geopolitical developments and corporate earnings - two key sources of volatility - could emerge over the next two months. He also believes sectors like Financials, IT and Energy, which constitute a significant chunk of overall earnings, must perform well to fuel market recovery.
Currently, Singhania manages assets worth Rs 34,450 crore across four schemes at DSP, of which the DSP ELSS Tax Saver Fund and DSP Large & Midcap Fund have earned four-star ratings from Value Research. In this interview, he shares his views on market volatility, the importance of valuations in stock selection, whether further correction is warranted to make them more appealing and which sectors or themes he finds reasonably valued or overvalued in today's market. Here's the edited excerpt.
Given the recent market volatility, do you anticipate a sustained recovery in Indian equities soon, or is uncertainty here to stay?
The Indian equity market is navigating a turbulent phase shaped by both global and domestic forces. I expect this uncertainty to persist. Policy changes and geopolitical tensions introduce new variables almost daily, clouding any forecast and making it unwise to react to every headline.
The upcoming quarterly results season adds another layer of doubt. For three to four quarters, earnings have been difficult to predict, with more disappointments than positive surprises, as companies face margin strain, supply-chain issues and shifting demand. Volatility is, therefore, likely to stay high in the months ahead. Investors should brace for choppy conditions and focus on resilience instead of short-term gains.
What key factors will drive market momentum or support growth going forward?
For the Indian equity market to regain sustained momentum, strong performance from key sectors - Financials, IT and Energy is essential. These sectors comprise a large share of overall earnings and index weight, but each faces specific headwinds. Banks are dealing with pressure on net interest margins due to rising funding costs and intense competition. IT companies are seeing weaker demand from global clients, especially in the US and Europe. Energy and Materials firms remain exposed to global growth concerns and commodity price swings.
Without meaningful contributions from these heavyweights, overall earnings growth will likely remain subdued. While certain segments, like some NBFCs or cement companies, may outperform on earnings, their influence on the broader market is limited. At DSP Mutual Fund, we're following a bottom-up strategy, focusing on companies with resilient earnings rather than betting on entire sectors.
We expect another round of earnings downgrades this quarter as analysts adjust forecasts for slower growth and margin pressure. This may put further pressure on valuations, especially for expensive stocks. In such an environment, being selective is key. Investors should favour companies with strong balance sheets and steady cash flows.
Given domestic and international factors, how long do you expect this uncertainty to persist? Will it take two or three quarters for the market to stabilise?
I believe the current uncertainty could start easing over the next two months, assuming a few key factors fall into place. Two main sources of market volatility, global political developments and corporate earnings should offer more clarity in that timeframe. On the global front, unpredictable actions by political leaders through trade policies, sanctions or diplomacy have unsettled markets. But over the next 45 to 60 days, I expect some of this to stabilise as governments firm up their agendas or markets adjust to new conditions.
On the domestic side, the current earnings season will wrap up by the end of May, giving a fuller picture of corporate performance. Management commentary will be crucial in revealing demand trends, margin pressures and growth outlook. These cues will help shape investor expectations and dampen short-term speculation.
By mid-2025, barring any major external shocks, a mix of clearer global signals and better clarity on earnings trajectory should help reduce uncertainty and bring more stability to the market.
Can you walk us through the core principles of your investment philosophy and how they guide your stock selection?
My investment approach is based on keeping things simple and being disciplined. At its core, I believe in understanding the business before investing. If I can't clearly explain how a company earns money, manages costs or stays competitive, I prefer not to invest. This helps me understand why I'm entering a stock and when I might consider exiting.
I also pay close attention to valuation. A lower price doesn't automatically mean a stock is attractive. For example, if a stock's P/E ratio drops from 40 to 30, I ask whether the earlier valuation made sense to begin with. If it didn't, the drop might reflect genuine concerns like weaker earnings rather than a buying opportunity.
Over the past six months, I've made small additions to existing holdings where fundamentals and valuation were aligned. But I haven't significantly increased any position. I prefer to wait for opportunities that meet my criteria and offer a reasonable balance of risk and return.
Do you believe there's room for further market correction to make valuations more attractive?
I separate overall market trends from individual stock performance, as they often diverge. For example, the Nifty 50 can rise mainly due to a few strong performers. In my portfolios, I focus on the quality of the businesses I own, not on where the index is. Even if the market drops and my fund's NAV declines, I assess how each company is doing compared to peers and how well it can recover when things stabilise.
A market correction can bring opportunities, but it also has risks. Some stocks may still be expensive even after falling, while others may offer real value. I don't favour any particular market cap - large, mid or small. What matters is owning good businesses at fair prices. A strong small-cap stock at a reasonable valuation is just as attractive to me as a large-cap stock. This market cap flexibility has shaped my stock selection over the years.
Are there any overlooked or contrarian opportunities in the market right now?
Clear opportunities are hard to find in the current environment, but I see value in specific areas within Healthcare, Financials and Energy. Within these sectors, certain stocks offer reasonable valuations and long-term potential. As a fund manager, it's important to act when such opportunities appear - waiting too long can mean missing the chance, as markets tend to re-price quickly.
That said, these sectors still require careful stock selection. In a volatile market, the risk of underperformance remains high if one picks the wrong names. So, while the potential exists, a selective and cautious approach is key.
Do you use momentum indicators in portfolio construction, and how do they blend with fundamental analysis?
Momentum indicators have a limited role, influencing less than 5-10 per cent of my decisions. Over the past two years, momentum strategies have gained prominence, with several funds capitalising on price trends. I track momentum to stay informed, receiving monthly reports from my risk and quantitative analysis team on portfolio stocks' momentum, growth and value characteristics. For example, if I plan to sell a stock but its momentum signals are strong, I may delay the sale to maximise value. However, 90 per cent of my decisions remain grounded in fundamental analysis, prioritising business quality over short-term price trends.
Post-correction, which sectors or themes do you find attractive, and which appear overvalued?
I find Financials, Healthcare, Energy and Telecom attractive, though select stocks within these sectors are overvalued. Financials offer opportunities in niche players and NBFCs, while healthcare benefits from structural growth drivers. Energy, particularly Public Sector firms, provides stability, and Telecom is poised for growth with expanding digital infrastructure. Conversely, Industrials and IT raise concerns, as their earnings expectations may not materialise, even after recent corrections. I'm underweight in Industrials relative to the benchmark, reflecting my cautious stance. Careful stock selection within attractive sectors is critical to avoid overpaying in a volatile market.
Also read: Global risks at this point may outweigh potential returns: SBI Mutual Fund's Saurabh Pant
Disclaimer: This content is for information only and should not be considered investment advice or a recommendation.
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