Mumbai, April 17 (IANS) The recent correction in the stock market amid geopolitical tensions has pushed the valuations of top Nifty stocks to the 17th percentile, despite significant FII selling of $12.7 billion, highlighting resilience in large-cap stocks and potential buying opportunities, a report has said.
A report by DSP Mutual Fund noted that despite $12.7 billion worth of FII selling in March 2026, the largest 10 stocks in the Nifty have shown remarkable resilience, with no significant disruption in trading activity or impact costs.
It said it is time to gradually raise equity exposure as markets move from expensive to fair valuation zones, particularly in large-cap stocks.
“Valuations, especially in large caps with the Nifty below 22,300, are now close to long-term averages. It is prudent to start raising equity weights while the market is falling and moving closer to fair value,” the report noted.
The Nifty’s trailing price-to-earnings (P/E) ratio has declined below 20 times and is estimated to be under 19 times based on Q4FY26 projections, near its long-term average of 18.9 times.
However, the report clarified that markets are not yet cheap, with fair value seen in the range of 16.5x to 18x, suggesting valuations are currently between ‘fair and average’.
The fund house advised investors to adopt a staggered approach to increasing exposure, noting that incremental investments during declines allow accumulation at better prices.
It flagged that the volatility indicator, India VIX, rising above 25 points signals a phase of heightened fear, typically associated with potential market bottoms.
In addition, market breadth indicators suggest oversold conditions, with only 18 per cent of Nifty 500 stocks trading above their 200-day moving average and just 13 per cent above the 50-day average.
Historically, foreign inflows tend to return when valuations become reasonable and macroeconomic concerns are largely priced in, the report said.
It also pointed to improving macro signals, including the Indian rupee trading near weaker real effective exchange rate (REER) levels, which could support future capital inflows.
However, the report advised caution in small and mid-cap (SMID) stocks, noting that while valuations have moderated, they remain elevated relative to large caps and could see further correction. It recommended exposure to SMIDs through Systematic Investment Plans (SIPs) and active fund managers focussed on quality and valuations.
Sectorally, high Return-on-Equity (ROE) segments such as FMCG, IT, oil and gas, and consumer durables are beginning to offer value opportunities after a phase of underperformance, while cyclicals have seen significant re-rating despite weaker long-term fundamentals.
The report also noted that prolonged market declines tend to precede strong recoveries. Historically, instances of four or more consecutive months of decline in the Nifty have been rare, but have delivered average returns of over 40 per cent over the following year.
“The real challenge for investors is behavioural, not analytical. Opportunities are visible during such phases, but acting on them remains difficult,” it said.
–IANS
ag/rad