Expert view: Investors should buy more stocks to benefit from market correction, says Varun Fatehpuria of Daulat Finvest

Expert view: Varun Fatehpuria, the founder and CEO of Daulat Finvest Private Limited, believes this is an opportune time for retail investors to double down their investments in the stock market to capitalise on the opportunity presented by the recent correction. In an interview with Mint, Fatehpuria shared his views on the current market valuation and sectors to look at now. Here are edited excerpts of the interview:

Is the Indian stock market fairly valued now?

India’s public equity markets currently present a mixed picture. After several years of sustained growth, we have recently entered the correction territory.

Large caps appear fairly valued, with the Nifty 50 trading at a one-year forward P/E (price-to-earnings ratio) of 18.8 times, closely aligned with its 10-year average of 18.3 times.

In contrast, mid and small-caps continue to trade at a premium relative to historical levels.

While robust earnings growth previously justified their multiple re-rating, the recent slowdown in earnings is leading to a partial moderation of these elevated valuations.

How do you assess the Q3 earnings? What are some notable upgrades and downgrades?

Q3FY25 earnings reflected sectoral divergence. IT and financial services delivered growth, supported by digital transformation trends and solid credit demand.

Infrastructure and capital goods also showed resilience, benefiting from sustained government spending.

In contrast, consumer discretionary, auto, and microfinance segments faced earnings pressure due to subdued demand, margin compression, and asset quality concerns, leading to downgrades in these areas.

How do you see the RBI’s policy decision after the consumption-themed Budget? Should we expect increased retail participation in the stock market?

After a five-year hiatus, RBI delivered the much-needed rate cut. Monetary policy and fiscal policy are aligned towards one singular objective: to drive consumption in the economy.

Cumulatively, these are expected to have a stimulative effect and improve market sentiments.

We believe this is an opportune time for retail investors to double down on their stock market investments to capitalise on the opportunity presented by the recent correction.

The current volatility is a good time to pick up some bargains and reduce the average investment cost.

Is Trump a serious risk to the market?

There will always be exogenous risks for equity market investors; hence, a risk premium is applied to this asset class to assume that.

What is different with the current US administration is the absence of policy certainty. And that is the risk that investors will have to live with. The next four years will be volatile but exciting for public market investors.

They must position their portfolios accordingly to take advantage of the upside and protect the downside.

How should we play the mid and small-cap segments now?

The phase of broad-based index growth is over. Instead, stock selection will play a crucial role, making this a true stock picker’s market.

Sector allocation will be key to generating alpha. Investors considering mid and small-cap exposure should adopt a staggered investment approach over the next few quarters.

Direct equity investors should focus on companies with strong market leadership, pricing power, and the ability to convert earnings into cash flows.

Mutual fund investors can consider investing in diversified equity funds, such as flexi-cap or multi-cap funds, which provide balanced exposure across market segments and better risk-reward.

What sectors do you see opportunities at this point?

Consumption-driven sectors like FMCG and auto stand to benefit tremendously after the recently announced tax cuts in the Union Budget.

It may take a while for the effect to permeate through the economy, but higher disposable income in the hands of the middle class will ultimately benefit consumption.

We are also optimistic about BFSI and Pharma due to favourable valuations and constructive future outlook.

The focus is on sectors that can deliver strong earnings growth at the right price. And stay away from ‘hot’ money, narrative-driven areas.

What key triggers will dictate the market trend in the coming months?

The markets are coming from a series of significant macroeconomic events, including the Union Budget 2025-26, the US Presidential Elections, and the RBI MPC meeting. 

While such events will always influence sentiment, the focus will shift towards fundamental drivers within our control. 

Investors will closely watch EPS growth and earnings quality as key market direction indicators. 

Due to lower-than-expected budget allocations, a potential reallocation from capex-driven themes could lead to increased interest in consumption-linked sectors. 

Additionally, after a period of multiple expansions, markets are likely to reward companies where stock prices better reflect intrinsic value and earnings potential.

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Disclaimer: The views and recommendations above are those of individual analysts, experts, and brokerage firms, not Mint. We advise investors to consult certified experts before making any investment decisions.