DSP’s NETRA is not a forecast document. It is a behavioural and valuation map. The February 2026 edition does not try to predict where markets will go next. Instead, it does something more useful for market participants it highlights where investor behaviour, valuations, sector positioning, and asset preferences have moved away from historical norms.

Across tariffs, equity valuations, sector weights, asset classes, volatility, and precious metals, one consistent message runs through the report :

This note explains the key signals the report is presenting to investors, portfolio managers, and market observers.

Tariff Cooling Does Not Mean Export Competitiveness Has Returned

The report begins with US tariff data on Indian exports. While tariff rates have come down sharply from the extreme levels seen in 2025, they remain significantly higher than pre-2024 norms across manufactured goods, agriculture, textiles, leather, and gems.

For an export basket exceeding $80 billion to the US, this means Indian exporters continue to operate under margin pressure and reduced competitiveness. The relief is visible in percentage terms, but from a business perspective, conditions are still far from normal.

The report is cautioning readers not to mistake tariff reduction for tariff normalisation.

India’s Valuation Premium Over Emerging Markets Has Meaningfully Reduced

For several years, India traded at an extraordinary premium to the rest of the emerging market universe. That premium has now fallen below its long-term average.

This has happened because other EM markets rallied strongly through 2025 while Indian equities corrected and underperformed. The result is that India is no longer an expensive outlier in relative terms.

For foreign institutional investors, this changes the relative attractiveness of India within the EM basket.

The SMID Correction Is Real, But Historically Not Yet Attractive

The report spends considerable attention on small and midcaps. Many stocks in this space have fallen sharply from their highs, creating the perception that value has emerged.

However, when viewed against long-term valuation history, median multiples for SMIDs remain well above levels seen during past bear markets when true long-term opportunities were created.

The message here is important for market participants: price damage alone does not create value. Valuation context matters.

Dispersion Is Returning After a Long Phase of Broad Overvaluation

A key data point in the report tracks how many stocks trade below three times book value. That number had collapsed over the past few years as valuations expanded across the board. It is now rising again.

This is an early sign that markets are moving from a phase where “everything was expensive” to one where selective opportunities are beginning to appear.

The Market’s Premium Has Shifted from High-Quality Sectors to Cyclicals

Historically, India’s premium valuation was supported by sectors with consistently high return ratios FMCG, IT, consumer durables, and parts of oil & gas.

Post-pandemic, cyclicals such as metals, construction materials, and capital-intensive businesses re-rated sharply despite weaker long-term return profiles. Meanwhile, high-quality sectors saw earnings slowdowns and valuation compression.

The report suggests that this imbalance may be reversing as valuations cool in quality franchises.

IT and FMCG Have Lost Market Relevance Despite Strong Business Fundamentals

The combined market capitalisation share of IT and FMCG has fallen to levels last seen more than a decade ago. This has occurred even though these sectors continue to deliver strong ROEs and stable business models.

The report is highlighting that market preference for high-growth themes has pushed investors away from these cash-generating franchises, potentially creating early opportunities.

Asset Class Signals Favour Debt and Large Caps Over Popular Trades

When looking at asset classes through the lens of historical return percentiles and valuations, gold, silver, global equities, and SMIDs appear stretched.

In contrast, government bonds stand out as relatively attractive due to low inflation, controlled borrowing, supportive liquidity, and favourable yield spreads.

The report is reminding investors that after a decade, fixed income is offering reasonable compensation again.

A Decade Without a Bear Market Has Reduced Investor Preparedness for Volatility

Indian equities have not experienced a prolonged bear market in nearly ten years. Volatility indices across regions sit near multi-year lows despite geopolitical and policy uncertainty.

This extended calm is not presented as a sign of stability, but as a behavioural risk investors have little recent experience dealing with sustained drawdowns.

Gold and Silver Have Transitioned from Strategic Hedge to Crowded Momentum Trades

Precious metals have rallied far beyond theoretical valuation frameworks. Central banks, which were early buyers, are slowing purchases. Meanwhile, ETF participation has increased after prices surged.

The report is advising caution, suggesting that risk-reward at current levels is difficult to justify.

Opportunities Are Emerging in Unpopular Industry Segments

The report identifies industry groups where a meaningful proportion of companies trade below their historical valuation percentiles insurance, housing finance, hotels, IT services, and select banks.

These are not market favourites, but they are areas where valuation compression is visible.

What the Report Ultimately Tells Market Participants

This NETRA edition is less about predicting returns and more about guiding behaviour.

It tells investors that :

• The phase of effortless re-rating is fading

• Selectivity is becoming important again

• Quality franchises are regaining valuation relevance

• Debt deserves attention after years of neglect

• Precious metals require caution, not enthusiasm

• Volatility complacency is a risk

• Margin of safety is slowly returning as a practical concept

For those involved in finance and markets, the value of this report lies in recognising that the environment is shifting not dramatically, but meaningfully from momentum-driven returns to valuation-driven decision making.

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