DSP Netra: High-ROE Stocks Offer Selective Opportunities Amid Shifting Market Dynamics

• DSP Netra highlights a shift in India's equity market premium, now driven by lower return-on-equity (ROE) cyclical sectors.
• Selective valuation opportunities are emerging in high-ROE segments as earnings growth moderates and multiples cool.
• Historically, high-ROE sectors like FMCG, IT, and consumer durables anchored India's valuation premium, but market leadership shifted post-pandemic to cyclicals.
• Pragati Aggarwal of DSP Mutual Fund points to corrected valuations in high-quality sectors, moderating earnings in high-ROE businesses, and cyclical pressures.
• Investors are advised to selectively own high-quality businesses with strong long-term return on capital and cash-flow visibility, focusing on temporary valuation compression versus permanent impairment.