SBI mutual fund sees reset in market sentiment, moves to neutral stance

SBI Mutual Fund has revised its stance on Indian equities to neutral from underweight, citing improved valuations, resilient GDP growth, and stable corporate earnings. The move marks a subtle but notable shift in the sentiment, as markets continue to hold firm despite global headwinds and tariff-related uncertainty.

“This shift represents a healthier market outlook and better long-term entry points,” the fund house said in its Market Outlook report, though it stopped short of recommending an overweight position.

May saw modest gains in domestic indices, with the Nifty up 1.7 per cent and the Sensex rising 1.5 per cent. Foreign portfolio investors returned as net buyers, even as overall market breadth weakened.

Corporate earnings for Q4 FY25 came in largely as expected, with sectors like metals, PSU banks, and capital goods showing strength. However, weakness in private banks and parts of the energy sector capped broader profit growth. SBI Mutual Fund expects earnings to grow around 10.5 per cent in FY26, contingent on continued topline recovery.

Valuation metrics have also turned more favourable. The report notes that the earnings yield to bond yield spread now suggests more modest valuations after a pullback in P/E multiples and falling 10-year bond yields.

"Quality and long-term fundamentals will start getting rewarded," the report said, adding that speculative trades are likely to fade as markets refocus on sustainable business models and consistent cashflows.

India's Q4 GDP growth of 7.4 per cent beating RBI and market forecasts—has further supported the case for a more balanced outlook.