What weighed on SBI Contra Fund's recent dip

Summary: SBI Mutual Fund’s Head – Investments explains why valuations still worry him, where the real opportunities are emerging, and which sectors he’s finally willing to back with conviction. A year ago, Dinesh Balachandran was far more cautious about markets than he is today. Back then, valuations were frothy, earnings were slowing, and investors seemed indifferent to the risks. Now, the Head - Investments at SBI Mutual Fund sees a more balanced landscape. Valuations remain a challenge, but stock-specific opportunities are opening up. Overseeing six schemes worth Rs 1.48 lakh crore, including five-star-rated funds like SBI Contra and SBI ELSS Tax Saver, Balachandran has steadily shifted from defence to conviction. After a cautious phase of high cash levels and defensive positioning, he’s consolidating portfolios and taking bolder sector calls. In this conversation, Balachandran explains why patience, focus and selective aggression define investing through market cycles. We’re in a phase where earnings momentum and valuations seem to be moving in opposite directions. How do you read this market—is it more opportunity or more risk right now? What’s interesting is that I was actually more pessimistic about the market a year ago than I am today. When I think about this whole valuation vs earnings growth conundrum, it was much more acute 12 to 15 months ago. At that time, valuations were frothy across the spectrum and earnings growth was beginning to decelerate meaningfully. The most worrying aspect was that market participants didn’t seem to be paying much attention to this deterioration in earnings growth. That, for me, was a far more concerning sign. To that extent, I was much more defensive 12 months ago. What has changed over the past year? When I look at valuations, yes, they still pose a meaningful challenge. But what we’re now witnessing is definitely more opportunities emerging from a stock-specific perspective. While many mid-cap and small-cap stocks still look expensive, from a bottom-up lens, there are certainly more opportunities. More importantly, in many companies and sectors, the deceleration in earnings growth now appears to be fully factored in, and you can actually argue that things might improve going forward. So, looking ahead, the market appears to have a more balanced setup; you can point to certain sectors showing positive acceleration in growth, while others may still languish. But overall, it feels far more symmetric compared to last year, when the picture was lopsided on the negative side. The SBI Contra Fund’s long-term performance remains impressive, but recent one