Valuations offer meaningful room for re-rating: Mirae Asset MF CIO

Market correction is largely over and valuations remain attractive, says Mirae Asset CIO Neelesh Surana, citing earnings recovery and India's strong macro outlook

The bulk of the market correction appears to be behind us, while  valuations remain reasonable and earnings growth is poised for a recovery, says Neelesh Surana, chief investment officer at Mirae Asset Mutual Fund, in an email interview with Abhishek Kumar. India’s macroeconomic stability, easing monetary conditions and a revival in consumption, Surana argues, underpin a constructive outlook for equities. Edited excerpts:

 

What are the key risks facing equity markets now? 

The immediate risk is the duration and intensity of the ongoing West Asia crisis. Any prolonged disruption would keep oil prices elevated, putting pressure on India’s current account deficit, the rupee, and foreign portfolio investor (FPI) sentiment. FPIs have sold a record $26 billion year-to-date and roughly $45 billion over the past two years. Beyond geopolitics, the rapid shift in market narratives — from US tariffs to AI disruption to the Strait of Hormuz-related concerns  — underscores how quickly risks can evolve and why investors should remain focused on long-term fundamentals rather than sensational headlines. 

Has the equity market correction run its course, or is there further downside risk? 

Markets have corrected meaningfully in both price and time. On a price-to-book value (P/BV) basis, valuations are 30-40 per cent cheaper than they were two years ago. The Nifty 50 now trades at 18.5x one-year forward earnings, roughly 20 per cent below peak multiples, placing valuations at reasonable levels. Earnings yields are attractive, given India’s structural growth, steady domestic institutional investor (DII) flows, and the tax advantage equities enjoy over fixed income. The bulk of the correction appears to be behind us; any residual downside is likely to hinge on near-term macroeconomic developments. 

Which triggers could drive markets higher? 

A resolution of the West Asia crisis and moderation in oil prices could trig­ger a virtuous cycle — easing pressure on the current account deficit, supporting the rupee, improving FPI flows, boosting consumer confidence, and aiding an earnings recovery. Beyond that, the medium-term outlook remains constructive, supported by five factors: Macroeconomic stability, monetary easing, fiscal support, improving banking profitability through net interest mar­gin repricing, and a recovery in mass consumption. Corporate earnings could rebound at a 14 per cent CAGR over the next two years. Valuations, at 18.5x FY27 earnings and below 16.5x FY28 estima­ted earnings, remain reasonable. India’s long-term structural growth drivers — favourable demographics, infrastructure investment, and emerging export opportunities — remain firmly intact. 

How significant a risk are elevated oil prices to corporate earnings? Are the effects already showing up, and which sectors are most vulnerable? 

The risk is real but manageable. Oil imports as a share of GDP have declined from more than 5 per cent in FY13 to around 3 per cent currently. If crude averages $95-100 a barrel through FY27, the current account deficit would widen by about 1.2 percentage points to around 2.2 per cent, still within comfortable bounds. The fiscal impact is estimated at 0.2-0.5 per cent of GDP, partly offset by the government’s $10.5 billion economic stabilisation fund. 

The sectors most exposed would be OMCs, airlines, and cement, though their combined weight in the Nifty 50 is less than 10 per cent. IT, pharma, healthcare, telecom, and FMCG would face minimal direct impact. 

What portfolio shifts did you make after the US-Iran conflict? Which sectors are you bullish and bearish on? 

The portfolio is overweight on private financials, consumer discretionary, and healthcare. We have selectively added midcap consumer discretionary names where the correction has created genuine value. We remain underweight on energy, capital goods, and IT. 

The broader markets have outperformed since April. You have rem­ai­ned bullish on the mid and smallcap space despite elevated valuations. Why do you believe the premium is justified? 

The mid and smallcap universe today is fundamentally different from what it was five years ago — the largest midcap company is now nearly 3.3 times larger. This transformation reflects new listings across emerging business categories, continued economic formalisation benefiting sectors such as footwear, retail, and healthcare, and sustained fund flows into SMIDs. Following a sharp correction, three of 10 SMIDs have fallen more than 50 per cent from their two-year highs. We are selectively increasing exposure where quality and valuation criteria are being met. 

How do you view current market valuations, particularly in largecaps? Are they attractive enough to draw foreign investors back?

 

FPI outflows have been driven by high relative valuations, limited exposure to AI-linked stocks, and macro vulnerabilities tied to oil prices and currency pressures. Most of these headwinds are now easing. At 19x one-year forward earnings, valuations offer meaningful room for re-rating. The Bloomberg Global Aggregate Index inclusion review in mid-2026 could drive $20-25 billion in passive bond inflows. Net FDI, which has been near zero recently, should also recover as primary market issuance slows. As these factors converge, FPIs are likely to increasingly view India through a three-to-five-year lens.

 

Should investors stagger investments or wait for greater clarity on the West Asia conflict? 

Our view remains constructive, given attractive valuations. Investors should maintain a balanced asset allocation and a long-term commitment to equities. Our three-year base case assumes returns of around 15 per cent CAGR, factoring in a 10-12 per cent expansion in P/E multiples. SIPs remain the most efficient way to navigate volatility, while new investors may consider hybrid funds. For those underweight on equities, periods of uncertainty have historically offered the best entry points. As Warren Buffett observed, uncertainty is the friend of the long-term buyer of value. Equities Kcompound well over time but require the ability to tolerate short-term volatility.