According to DSP Mutual Fund’s Abhishek Singh, large financial and insurance stocks now present the most balanced risk and reward opportunities in India, despite broad market valuations appearing elevated and sector disparities widening.
Large financials and insurance stocks currently offer the most attractive balance of risk and reward among Indian sectors, according to Abhishek Singh, senior vice president and fund manager at DSP Mutual Fund. In an email interview with NDTV Profit, Singh said broad market valuations can look misleading because they mask sharp differences between sectors and market capitalisation buckets.
He said large-cap shares now appear more fairly priced on several measures, but much of that relative appeal comes from financial stocks that have lagged and become cheaper. Excluding financials and information technology, Singh argued, even the biggest companies are not especially inexpensive. Mid-caps, by contrast, still look the priciest on headline metrics, although some have stronger earnings quality. He cautioned that cyclical businesses can look deceptively cheap near the top of their earnings cycle because margins and profit growth temporarily inflate valuation ratios.
Singh also pointed to the wider market backdrop. The Nifty 500 is trading at about 23 times earnings and the Sensex at roughly 21 times, levels he said are about 10% to 15% above long-run averages. In his view, that means valuation multiple expansion may be harder to rely on over the medium term, especially as India moves into a lower-inflation setting. With price growth softer than in recent years, nominal earnings growth may also be less buoyant than investors have grown used to, even if real returns remain respectable.
That is why Singh urged investors to think in real terms rather than simply compare returns with the past decade. He said a 13% return in a 7% inflation environment can be roughly as attractive as an 11% return in a 5% inflation environment. Reuters has previously reported similar concerns from market strategists who argue that higher starting valuations and slower inflation can temper future equity gains, even when corporate balance sheets remain strong. Singh also said commercial real estate looks interesting on a relative basis, while large-caps may continue to outperform over a longer cycle, particularly where financials and some defensive sectors remain reasonably valued.
Disclaimer: This article is intended to inform and educate, not to recommend or endorse any financial product, investment or strategy. Please consider your own financial circumstances and seek professional advice where appropriate before making financial decisions.
