DSP Mutual Fund believes this may be the right time to buy Indian stocks. (An AI-generated image)AI Quick ReadThe Indian stock market has no dearth of headwinds. A raging war in West Asia, surging crude oil prices, and massive foreign capital outflows keep domestic market sentiment fragile. As of April 6, market benchmarks, the Sensex and the Nifty 50, have dropped up to 14% from their peaks.
However, amid this ongoing correction, emerging signs suggest it may be the right time to add equity exposure in moderate proportions, according to DSP Asset Managers.
The asset management company (AMC) is shifting its stance on equities as market valuations approach fair levels.
The base of DSP AMC's hypothesis is easing market valuations, which offers an opportunity to start raising equity exposure while the market is falling and moving closer to fair valuation levels.
The AMC highlighted that the large-cap valuations are now close to long-term averages. Major sectors, including banking, IT, healthcare, insurance, housing finance, and select FMCG, which together account for more than half the market cap, are at or below long-term valuations, according to DSP Asset Managers.
However, the valuations are not cheap; they are getting closer to fair levels.
"The Nifty’s trailing price-to-earnings multiple has fallen below 20 times. On Q4FY26 estimates, it is already below 19 times, around its long-term average of 18.9 times. It is still slightly above what may be fair. At a 16% ROE (return on equity) and earnings growth of 10% to 12%, the index should likely trade at 16.5 times to 18 times. That means valuations are now between fair and average," the AMC said.
However, small and mid caps (SMIDs) are still at much higher price levels than large caps, even though SMID valuations have started to normalise, the AMC noted. And that is why this could not be the time to be very aggressive on equities.
"The time to add equities aggressively may come when value also starts to emerge in SMIDs. For now, this is a time to raise equity allocation by a notch," said DSP.
Valuations alone are not the point that suggests it is time to increase equity exposure. Most indices and large-cap stocks are deeply oversold, making them ripe for a rebound if market sentiment improves due to positive signals from the West Asian war front.
"Only 18% of Nifty 500 stocks are above their 200-day moving average, and only 13% are above their 50-day moving average. These readings are approaching extremes, though they are not at the absolute extreme yet," DSP Asset Managers noted.
Another point highlighted by the AMC is the bond yield to earnings yield gap, which is now just 1%.
"This is an attractive zone for owning stocks. It has been meaningfully better only during full-blown panics," said the AMC.
Volatility index India VIX surged to its 52-week high of 28.91 on March 30 this year, hinting at panic among market participants. According to DSP Asset Managers, panic-selling days should be used to increase equity exposure even as there is room for further downside in the Nifty 50, as the drawdown from the peak is only 15.5%.
The AMC, however, observed that the Nifty 50 has not fallen more than 20% in the last six years, except during the COVID-induced market crash.
The ongoing war in West Asia and the resulting jump in crude oil prices remain key variables that will dictate the market trend in the short to medium term.
While hopes are high that the war may end in the next two to three weeks, the fresh aggression of US President Donald Trump against Iran and uncertainty about the reopening of the Strait of Hormuz keep investors on tenterhooks.
Many experts believe the full impact of elevated crude oil prices on the earnings of Indian corporates and on the overall economy cannot be assessed at this juncture. If the war prolongs, the market downtrend may continue. On the other hand, a resolution will improve sentiment.
One way to play this uncertainty may be buying quality stock on the dip, as an end to the US-Iran war and a fall in crude oil prices may trigger a swift rebound in the market, and it would be prudent to be ready to reap the benefits of that rebound.
On a monthly basis, the Nifty declined from December 2025 to March 2026. Nifty's fall for four consecutive months is not common.
As DSP Asset Managers underscored, historical data show that once the losing streaks ended, forward returns were usually favourable.
"In the full monthly history, only 7 episodes lasted 4 months or longer, and the longest was an 8-month run from September 1994 to April 1995. Across the 7 completed cases, the average return was 12.2% over 3 months, 22.4% over 6 months, and 40.7% over 1 year, while the median return was 13.9%, 17.0%, and 20.8%, respectively," said DSP Asset Managers.
The market will continue reacting to news flows surrounding the US-Iran war. However, DSP Asset Managers find the time suitable for increasing equity exposure.
Read all market-related news here
Read more stories by Nishant Kumar
Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.
Nishant is a market reporter at Mint, where he holds the official designation of Principal Correspondent – Markets. He has been closely tracking the Indian stock market as well as major global stock markets along with the broader macroeconomic trends for a decade.
<br><br>
He is obsessed with breaking down complex financial and economic concepts into clear and engaging stories. He focuses not only on what is happening in the markets, but also why it matters.
<br><br>
His coverage includes stock market trends, sector rotations, monetary and fiscal policy developments, inflation, growth data, and personal finance strategies.
<br><br>
With nearly 10 years of experience in covering financial markets, Nishant has covered bull markets, corrections, policy transitions, and macro developments that has equipped him with a deep understanding of how domestic and global forces shape markets and affect investments.
<br><br>
He regularly interviews market veterans, fund managers, economists, policymakers, and corporate leaders to provide readers with a 360-degree view of market dynamics and the broader economic landscape.
<br><br>
Before joining Mint, Nishant worked with some of India’s most respected business newsrooms, including The Economic Times and Moneycontrol, where he reported extensively on the stock market, corporate earnings, macroeconomic trends, GDP, inflation, monetary policies of the RBI and the US Federal Reserve, bonds, and currencies.
<br><br>
Apart from economics and investing, he has interests in geopolitics and emerging technologies, such as AI.