Is it a good time to invest via lump sum?

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• Market corrections lower valuations, making lump sum investing attractive.
• Experts advise lump sum for long-term, risk-tolerant investors
• Balanced strategy and fund choice recommended to manage timing risk

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With markets going through bouts of volatility and recent corrections, many investors have been holding back, waiting for clearer signals before committing fresh money. The uncertainty around valuations, earnings visibility and global cues has kept a large section of investors on the sidelines, especially those looking to deploy a sizeable lump sum.

The question now is whether this phase of volatility is a risk or an opportunity.

Why the current market favours lump sum investing

A year ago, one of the biggest concerns for the Indian equity markets was high valuations. Markets had run ahead of fundamentals, and there were worries about whether earnings would catch up.

A. Balasubramanian, MD & CEO of Aditya Birla Sun Life AMC Ltd in a recent exclusive conversation with Moneycontrol, said investors can start considering lump sum investments at this point. “Over the past two to two-and-a-half years, markets have gone through a phase of time correction across sectors, which has helped bring valuations down. With the recent correction in the Nifty and across mid- and small-cap segments, valuations are now close to, or even slightly below, long-term averages.”

He further added, “Markets now appear to be finding support at current levels, which could limit downside risk from here.”

India’s benchmark Sensex and Nifty are currently trading at a one-year forward price-to-earnings multiple of about 17.8 times, the lowest level since April 2023. The valuations are below their 10-year averages of 19.8 times for the Sensex and 18.99 times for the Nifty.

Nifty 50 has given a negative return of 6 percent in six months and 5 percent in the last one year.

At the same time, while near-term triggers remain uncertain, the potential for upside remains intact. “It is difficult to predict when the next positive trigger will emerge,” he said, pointing to factors such as earnings growth, oil prices and geopolitical developments. “But if these turn favourable, markets could see sharp upside moves.”

Data also suggests improving valuation comfort in parts of the market. According to Raj Gaikar, Research Analyst at SAMCO Securities, “Around 31 percent of stocks in the broader microcap segment are currently trading at low price-to-book multiples, a level that has historically been associated with phases of accumulation and improving risk-reward for investors.”

According to experts, this combination of easing valuations, signs of market stabilisation and potential upside triggers is what makes current levels a reasonable point to start deploying capital.

Lump sum investing make sense for long-term investors

Other experts also echo this view on lump sum investing.

Nilesh D Naik, Head of Investment Products at Share.Market (PhonePe Wealth), says, “Investing can still make sense, provided investors are clear about their time horizon and risk appetite. A meaningful correction in valuations across segments has opened up opportunities for long-term investors.”

Experts say if an investor has a long-term horizon of at least 3-5 years and is comfortable with short-term volatility, lump sum investing can make sense.

However, he further added, “If the investment amount is large relative to one’s portfolio, it may be better to spread it over time to reduce risk.”

That said, not all experts are fully aligned on aggressive lump sum investing.

Vijay Maheshwari, Founder of Stocktick Capital explains, “While long-term growth prospects remain intact, parts of the market, especially mid- and small-cap segments, still appear relatively expensive and could see further corrections in the near term.”

“At this stage, deploying a fully aggressive lump sum into equities may not be prudent,” he adds, suggesting a more selective and balanced approach.

Where to invest and how to manage risk

Balasubramanian, in his conversation, pointed to specific categories for lump sum deployment. “Investors can look at flexi cap, mid cap and multi cap funds as potential avenues,” he explained.

Industry experts say investors should focus on funds with a quality or value bias, as these can help manage downside risks.

Naik adds, “For more cautious investors, hybrid funds such as balanced advantage funds may be suitable, while diversified categories like flexi cap or large and mid cap funds may work for those with a higher risk appetite.”

Take a balanced approach

Even as lump sum investing becomes more relevant at current levels, managing timing risk remains important.

Balasubramanian noted that systematic approaches still have a role to play. “SIP remains a disciplined way of investing, and STP also continues to be relevant,” he said.

A practical approach, experts say, could be to deploy part of the funds as a lump sum and stagger the rest over time. This will allow investors to participate in current market levels without taking on the full risk of timing the market.

Ajay Kumar Yadav, CFPCM, Group CEO & CIO at Wise Finserv, also highlighted that while recent corrections have made valuations more attractive, global factors such as elevated crude prices and geopolitical tensions could keep markets volatile.

He further adds, “Instead of going all in with a lump sum, a staggered deployment approach works better in the current environment. Deploying a part now and keeping some cash for further corrections allows investors to participate without taking unnecessary timing risk."