Expert view: Bullish on Indian stock market for long term despite persisting uncertainty, says DSP MF head of equities

Expert view: Vinit Sambre, the head of equities at DSP Mutual Fund, is positive about the Indian stock market for the medium to long term, expecting healthy corporate earnings. In an interview with Mint, Sambre shared his views on key triggers that will shape the market, outlook for the mid and small-cap segments and sectors he is positive about. Here are edited excerpts of the interview:

How do you see the market’s performance in the first half of the year?

Macroeconomic indicators are showing signs of improvement, setting a constructive backdrop for the markets.

Some key developments include aggressive cuts in interest rates in the last five months, which should support consumption and credit growth, easing inflation, primarily driven by softening food prices, tax relief through higher minimum income slabs, expected to positively impact nearly 20 million taxpayers and boost disposable incomes, a normal monsoon outlook, which bodes well for agricultural output and rural demand and benign commodity prices, helping keep input costs in check.

Together, these factors are expected to benefit both the low- and middle-income segments, potentially driving a broad-based consumption recovery.

Additionally, corporate earnings should see an uplift not only from this improving macro setup but also due to the low base of FY25, amplifying growth figures.

While some earnings volatility may persist over the next quarter or two, the overall outlook for equities remains positive over the medium term.

Amid global and tariff-related uncertainties, do you think we can end the year with modest gains?

Instead of offering a traditional year-end market outlook, I’d like to approach the question from a different perspective.

We must come to terms with the fact that uncertainty is here to stay. Our base case is that the environment will remain volatile, and it will be increasingly difficult to anticipate, calculate, or price in the variety of risks emerging — whether from tariffs, geopolitics, or shifting policy landscapes.

In such a world, our focus as portfolio managers is to own businesses that can endure and thrive.

Specifically, companies that have built strong, defensible franchises, anchored in competitive moats, and have consistently proven their ability to navigate through economic and industry-level disruptions.

After all, markets are simply a reflection of the aggregate health and performance of individual companies.

And we see no shortage of companies in India that are steadily building such resilient propositions.

That gives us continued conviction in the medium to long-term outlook for Indian equities.

What are the key triggers that will shape the domestic market in the medium term?

As mentioned in the earlier answer, our core assumption is that a combination of supportive factors — including tax benefits, lower interest rates, easing inflation, and a positive agri outlook — will drive a recovery in consumption, which in turn should support corporate earnings growth going forward. 

However, any risk that challenges this thesis — whether macroeconomic or sector-specific — could make it difficult for current elevated valuations to hold. If companies fail to deliver on growth expectations, market volatility is likely to follow.

What is the outlook for the mid- and small-cap space? Given heightened uncertainty, should we tilt more towards the large-caps?

Mid and small caps have witnessed a meaningful broadening of opportunities over the past few years, driven by the emergence and participation of new sectors such as electronic manufacturing, insurance, quick commerce, platform companies, wires and cables, speciality chemicals, healthcare (hospitals, diagnostic labs), etc. 

This has expanded the investable universe beyond what is typically available in the large-cap space. 

This shift has led to greater capital flows into these segments, resulting in elevated valuations. 

However, in many cases, these valuations appear justified given the stronger growth prospects and structural tailwinds supporting some of these sectors. 

We believe that mid and small caps offer a compelling long-term opportunity to invest in high-quality businesses that are tapping into underpenetrated and fast-growing segments of the economy. 

While market volatility may lead to near-term uncertainty, investors with a five to seven-year horizon are well-positioned to benefit from the potential wealth creation these businesses can offer.

What sectors are you looking at for the next two to three years?

With the decline in interest rates, we hold a constructive view on several segments of the market. 

We are particularly positive on consumer discretionary businesses, which are likely to benefit from improved affordability and rising demand. 

We also see lending institutions — especially NBFCs — as well-positioned to capitalise on lower funding costs and potential credit growth. 

In addition, speciality chemicals have emerged from a subdued cycle over the past three years and could see a meaningful recovery. 

Lastly, within the energy sector, we are optimistic about select companies that stand to benefit from the increased capital expenditure linked to the ongoing energy transition.

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Disclaimer: This story is for educational purposes only. The views and recommendations above are those of individual analysts or broking companies, not Mint. We advise investors to check with certified experts before making any investment decisions, as market conditions can change rapidly, and circumstances may vary.