What Are We Saying: Buy Equity . . Through MF route particularly Large Caps

We are dropping our conservative stance on equities.
A few signs that make the current correction suitable to add equity allocation in moderate proportions:

1. Valuations, especially for large caps with Nifty Index at 22,500, are now close to long term average. Banks, IT, Healthcare, insurance, housing finance and a few FMCG names (these collectively constitute more than half of market cap) are at or below long-term valuations.

2. For several large caps with ROEs of 15% to 16%, and multiples of less than 17x, even at current earnings growth of 10% to 12%, it would make sense to have suitable allocation. Whenever earnings revive, they can deliver better outcomes than bonds. One can find many of these stocks today.

3. For SMIDs, a more cautious stance is needed or allocation to active distributors with focus on valuations and quality is key, in a SIP mode.

4. The bond yield to earnings yield gap is now just 1%. This is an ideal zone to own stocks and has become more favourable only in full blown panics like COVID crash or GFC '08.

5.India VIX went over 25 and has started to recede. This is a sign that there is a reasonable amount of panic.

6. Most indices and large cap stocks are at extremely oversold readings. Only 15% of Nifty 500 Index constituent stocks are over 200 day moving average. Only 11 percent are over 50-day average. These readings are approaching extreme reading, although aren't at extremes yet.

7. Indian Rupee, as per REER, is at an oversold reading.

8. Indian GSec stands at 160 bps premium to repo rate, limiting the extent of where rates could be.

9. A time to add aggressively to stocks can come when value starts to emerge in SMIDs as well. Hence this is a time to raise equity allocation by a notch. . . . Note by Sahil Kapoor , Dsp MF

Blog by Mr.Santosh G Akerkar for educational and knowledge purposes only.

Best Regards,
Santosh Akerkar