'Next 3-6 months appear conducive for staggered investment'

Summary: Is this a pause or the start of something worse? After 15 months of sideways markets, Rohit Singhania argues this isn’t capitulation but consolidation. In this conversation, he explains where he’s turning selective, what still looks stretched and why the next few months may reward patience.

After 15 months of sideways markets and stock-level corrections, Rohit Singhania sees consolidation rather than capitulation. The Co-Head of Equities at DSP Mutual Fund, who oversees five schemes managing about Rs 45,300 crore, believes the recent phase reflects a time correction driven by earnings disappointment, not the onset of a structural bear market.

With signs of stabilising earnings, easing downgrades and stronger balance sheets, he argues that improving visibility now outweighs valuation concerns. Across strategies such as DSP Dynamic Asset Allocation, DSP ELSS Tax Saver and DSP India TIGER Fund, all rated four stars by Value Research, Singhania remains anchored to business quality, margin of safety and disciplined stock selection.

In this conversation, he outlines where risk-reward looks favourable and why patience, not panic, is warranted.

After the strong rally of the last few years, markets are now moving sideways with sharp stock-level corrections. What would convince you that this is just a healthy consolidation, and what signals would tell you we’ve entered a deeper bear phase?

I don’t believe we’ve entered a bear phase. If you rewind 12-15 months, corporate earnings were the big question mark. Quarter after quarter, results disappointed—not just within the Nifty 50 but across broader markets, yet markets remained elevated. Everyone kept expecting a normalisation that never quite arrived.

Fiscal year 2025 earnings weren’t disastrous but were clearly weaker than expected. At the same time, global trade uncertainties and tariff expectations didn’t play out as hoped. So, in my view, the last 15 months represent a healthy time correction rather than a structural bear market.

What gives me greater comfort now is the most recent quarterly results. For the first time in many quarters, we’re seeing signs of stabilisation. The pace of earnings downgrades has eased, analysts are no longer uniformly negative, and in several sectors, earnings have surprised positively, narrowing the gap between expectations and delivery.

Nifty 50 Valuations at 20–21 times one-year forward earnings are not cheap, but when I combine improving earnings visibility, macro stability, better GDP growth expectations for the next two years, and strong corporate and bank balance sheets, I don’t get worried. The next three to six months appear conducive for staggered investment.

Which parts of the market look most attractive on a risk-reward basis today? And where do you still see excess valuations?

We favour areas where three factors align: earnings visibility, balance-sheet strength and reasonable valuations. Currently, that framework points us toward Financials, Telecommunications, Healthcare and select PSU names within Energy and Financials. Within Financials, certain banks stand out for their combination of valuation comfort and growth visibility. For investors with a two- to three-year horizon, these segments offer a compelling risk-reward profile.

On the other hand, Industrials appear stretched. Valuations seem to already price in very strong growth, and in many cases, the implied expectations leave little margin for error. Consumer staples present a more nuanced picture. Historically, they haven’t screened as expensive, but relative to recent business performance and near-term growth expectations, valuations remain elevated. Growth has slowed, yet multiples haven’t corrected meaningfully. If bottom-of-the-pyramid consumption revives from a low base, growth could improve—but at current prices, selectivity is key.

How would you describe your investment style in a phase like this, where valuations are cooling, but earnings visibility is still evolving?

My framework has remained consistent through cycles. The key to being able to adapt to big changes. First, business quality and moat. The past tells you how a company was run, but what matters is whether its competitive advantage will be sustained in future. Moats evolve, competition intensifies, and adjacent diversification may or may not work—the assessment must remain dynamic. Second, the price I pay. If implied growth assumptions are high on account of the price I am paying today, where is the margin of safety? Even minor disappointments can trigger sharp corrections in crowded trades.

Third, if I don’t understand a business, I don’t buy it. You may enter correctly by chance, but without conviction, you won’t exit correctly. I focus more on the next two to three years than the next 10. Businesses validate themselves through quarterly results. My role is to continually reassess—not to predict the distant future with certainty.

In a market with constantly shifting leadership, the DSP Large & Midcap Fund has delivered steady relative performance over one and three years. Did the performance come more from getting the allocation right or from avoiding the wrong stocks?

It was a combination, but primarily stock-driven, with an openness to adapt. Some investments were initiated 18–24 months ago, when sentiment was weak. In Financials and Energy, a few high-conviction calls delivered strong outcomes. Importantly, we backed those convictions with meaningful active weights—being right without position sizing doesn’t create alpha.

Sector positioning also helped. Financials and Energy were major contributors. We were underweight IT until mid-year and increased exposure later. Within Financials, overweight positions in select banks and differentiated NBFCs added meaningfully. That said, the core driver remained bottom-up stock picking. We never started with a rigid top-down sector view; the alpha emerged from individual business calls.

DSP Small Cap Fund has seen a sharp recovery, while DSP Midcap Fund has recovered but not as strongly. What is your view on both schemes, and how should investors think about them?

I remain constructive on both. Performance in our small-cap fund came largely from stock-specific outcomes. Our business calls in certain auto ancillaries, jewellery, small-cap IT and wealth managers did well. Where most of the market was seeing earnings downgrades, these businesses saw steady upgrades.

Recovery in our mid-cap fund has been slow but on track. The philosophy across both funds remains consistent—focusing on growth-oriented, high-quality and ROE businesses. That said, we’ve become more open to turnaround stories where current ROEs may appear modest, but the improvement trajectory is significant.

We haven’t changed the core philosophy, only refined our lens. In some cases, starting metrics weren’t perfect, but the direction of change and moat improvement were compelling. That flexibility has helped.

Also read: 'Correction could be more prolonged in mid and small caps'