Over the past year, equity markets in India have seen a lot of volatility, and returns have been lacklustre, amid global geopolitical and trade tariffs-related uncertainty. While the benchmark BSE Sensex has barely risen 1 per cent in the past six months, midcap and smallcaps have been slipping. Amid the uncertainty, SBI Mutual Fund, the country’s largest asset manager, is betting on quality to deliver long-term returns and has now launched a new fund that will focus on the quality factor as a theme.
The scheme would primarily invest a minimum of 80 per cent of its assets in equity and related instruments, identified based on the quality factor.
Overall, though, while the fund house’s model framework (based on balanced advantage fund where there are active calls in terms of equity percentage) is suggesting a higher equity allocation now than where it was about 18 months ago, it may still not be the time to go all out on equities.
“In the middle of 2024, our framework was essentially suggesting a recommendation of only 20 per cent to equities in a zero to 100 model. The model was throwing out red flags on all three pillars – valuations were much more expensive compared to historical norms, sentiment was way off the charts, in terms of everybody wanting to just get into equities, and on the near-term earnings outlook, we were seeing more downgrades than upgrades. So, that was a time to be really pessimistic,” noted Dinesh Balachandran, head of investments at SBI Mutual Fund.
“If you fast forward now, the same framework is suggesting a 60 per cent allocation, which means it is no longer as bad as what it was. Are we at mouth-watering levels where you have to go all in on equities? From this model perspective, no,” he said.
In contrast, the asset manager believes this could well be the decade for commodities. There has been a record rally in gold, silver and platinum. Copper prices too surged. Balachandran attributes this commodity surge to the under-investment in the space in the last decade amid a long period of dis-inflation, which, coupled with rising demand now, is boosting their pricing power.
“When you look at the capex trends from 2014-2020, in the commodity space, it went down so much because no one was able to get funding for greenfield commodity exploration. When you have such a long-period of under-investment, then the pendulum starts swinging in the other direction, and you are seeing pricing power come back with a bang,” noted Balachandran.
These sectors are such that any new projects take a long-time to actually get going, he stated. In his opinion, to the extent the last decade was a “bust period for commodities,” he suspects this decade is going to be a “boom period for commodities.”
How do other experts see things panning out?
PL Asset Management, the asset management arm of PL Capital Group, pointed out that Indian equity markets were navigating a phase of consolidation and while domestic macro fundamentals remained structurally strong, near-term equity performance had been constrained by external headwinds.
“Markets are currently in a phase where outcomes are being driven more by asset allocation than by broad-based equity rallies. While India’s long-term growth fundamentals remain intact, near-term volatility is inevitable. Gold and silver have once again demonstrated their relevance as portfolio stabilisers,” according to Siddharth Vora, head – quant investment strategies and fund manager, PL Asset Management.
While Indian equities are expected to benefit from a gradual recovery in domestic earnings and potential global capital rotation as valuations in AI-led global markets normalise, diversified asset allocation would remain critical until volatility moderates and market breadth improves, the fund manager believes.
India’s equity markets saw over ₹1.66 lakh crore in foreign institutional investor outflows in 2025. So far in January 2026, FIIs have further offloaded ₹33,598 crore in stocks. In this backdrop, in the past six months, the Sensex is just up 1.2 per cent, while midcap and small indices have fallen over 3 per cent and 11 per cent, respectively. Meanwhile, gold has jumped, hitting Rs 1.6 lakh per ten gram for the first time amid strong global demand for the safe haven asset. Silver has topped Rs 3.5 lakh a kilo, also mirroring a global shift towards safe haven assets as well as sustained industrial demand, while supply has lagged.
Over the last year, while Indian equity markets have been lacklustre, other emerging markets like Korea, Taiwan and China have seen a sharp rally led by booming demand for AI-led technology stocks. As global investors reassess valuation excesses in narrow themes, India’s broader domestically driven earnings profile improves its relative appeal, according to wealth management firm Equirus Wealth.
“India benefits from the combination of strong real growth and macro stability,” said Mitesh Shah, CEO, Equirus Family Office.
According to the wealth management firm, while gold remains a strategic long-term asset, silver is seen as a cyclical metal where timing and risk management matter far more.
“Gold continues to stand out as a long-term structural allocation rather than a short-term trade. At current levels, much of silver’s recent upside reflects crowded positioning and elevated expectations, increasing the risk of sharp corrections even if the longer-term theme remains intact,” it said.