If you’ve missed this stock market rally, you’re probably wondering whether you can join it now. Well, while it is never a good idea to make investment decisions based on market movements, here are three themes that are still at discounted valuations to the market and the equity funds that allow you to bet on them.

PSUs : They are large; are positioned in the core sectors of the economy and can see substantial upside on reforms. We’re talking of public sector undertakings which, thanks to a combination of high government intervention, policy logjam and high uncertainty, have been beaten down to a steep valuation discount on the markets in the last three years. Despite some recent gains, PSU stocks continue to trade at a discount to the market, despite many of these firms being industry leaders, with good balance sheets.

The BSE PSU Index, for instance, trades at a price-earnings multiple of just above 13, to the Sensex’ 18 times. While Goldman Sachs’ CPSE ETF is an option to buy a basket of PSUs, the fund’s passive nature is a constraint. Religare Invesco PSU Equity and Baroda Pioneer PSU are active funds with best track records.

Mid- and small-cap stocks : Small- and mid-cap stocks have outpaced the benchmark indices since last September, but viewed from the previous market peak, these stocks may have a long way to go if the ongoing bull-run continues. There are any number of specialised mid- and small-cap funds, but the simplest way to play this theme is to just buy the market itself. How — you ask. Well, buy units in the Goldman Sachs CNX 500 Fund , an open-ended fund which passively tracks India’s top 500 companies by broadly mirroring the CNX 500 index. The fund hasn’t fared too well in the last five years as investors have favoured blue-chip names over the rest of the market.

But as the market rally gathers steam and the gains attract broader market participation, this fund will be a hard one to beat.

Financials : Despite their recent gains, banking and financial companies remain one of the reasonably valued themes in today’s market.

The prospects of banks as well as NBFCs are highly correlated to the economy with earnings likely to pick up on signs of even mid recovery. While PSU banks were undoubtedly the least expensive in this space, the recent market rally has altered that, with leading PSU banks now trading at or above book value.

Given that the bad loan problems of these banks may not be immediately alleviated, this section of the market is not without risk. Instead, there are a host of active funds that invest both in public sector and private banks as well as NBFCs.

Their three- and five-year records, which were quite lacklustre, have received a boost from the recent bull-run, with the category now averaging a three-year return of about 8 per cent and a five-year return of about 20 per cent. ICICI Pru Banking and Financial Services Fund has the best five-year record, followed by Reliance Banking Fund .

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