India large caps offer entry point after correction, says DSP strategist
A recent market correction has created a strategic buying opportunity in Indian large-cap equities and long-duration bonds as structural macroeconomic risks remain contained.
The recent sell-off in Indian equities has provided an attractive entry point for long-term investors, according to Sahil Kapoor, market strategist at DSP Mutual Fund. Kapoor argues that the current environment favors building positions in large-cap stocks and longer-duration government bonds over chasing short-term momentum.
This contrarian stance challenges the prevailing market narrative shaped by heavy foreign portfolio investor selling and a stressed rupee real effective exchange rate. Kapoor emphasized that investors should ignore capital flow noise and focus on corporate earnings and the fundamental price paid for assets.
Fears of a broad macroeconomic tightening cycle are misplaced, Kapoor noted. The primary risk to India's current account deficit, currency, and inflation would require oil prices sustained above $120, a scenario not supported by current data. Oil has fallen below pre-war levels, while robust services exports and remittances provide a substantial external cushion. India's balance of payments for fiscal year 2027 now looks more like a support than a source of stress.
Concerns over monsoon-driven inflation are similarly overstated. India is less vulnerable to rainfall deficits due to structural agricultural improvements. Irrigation now covers 55% of the gross cropped area, up from 40% in fiscal year 2011. Total gross cropped area has expanded to 218 million hectares in fiscal year 2024 from 201 million hectares in 2014, and cropping intensity has risen to 157% from 143%. Historical data shows monsoon deficits do not automatically trigger high food inflation without compounding policy and inventory failures.
At the corporate level, balance sheets are clean and the banking system is well-capitalized to fund growth. The primary constraint on the market is a lack of demand visibility and strong revenue growth. Kapoor warned that while earnings cuts may hit oil-sensitive sectors, the broader market is positioned to look through short-term disruptions.
Within the large-cap space, valuations and quality are currently aligned in private banks, autos, and healthcare. Beyond equities, Kapoor highlighted longer-duration government bonds as an attractive hedge. Ten-year government security yields remain elevated relative to India's inflation, growth trajectory, and balance-sheet stress. If growth revives and yields fall, these bonds will benefit portfolios.
The underlying strategy is not a choice between equities and bonds, but a selective bet on rupee assets against what Kapoor described as "exaggerated pessimism." Investors who buy large-cap equities and duration bonds at current valuations are positioning for a recovery in sales growth and a potential easing of yields.
