Domestic equity market continues to remain under pressure, with little sign of a decisive breakout. Rising crude oil prices and bond yields have added to the selling pressure, overshadowing the country’s strong Q1 GDP growth, with the benchmark BSE Sensex and NSE Nifty50 closing higher in only one of the past seven sessions.
Over the past month, the Nifty50 has declined 4%, taking its year-to-date loss to nearly 10%. The correction is not a short-term phenomenon. Barring a brief rebound in December 2025 and early January 2026, the benchmark indices have remained under sustained selling pressure for nearly two years. >From their late-September 2024 peaks, the Nifty and Sensex are down around 10% and 12%, respectively.
On Tuesday, September 8, the Nifty50 fell 0.61% to close at 23,635, while the Sensex declined 0.73% to settle at 75,577.
While slowing corporate earnings and persistent foreign institutional investor (FII) selling have weighed on the market over the past two years, rising geopolitical tensions in West Asia and their impact on global energy prices have further reduced the attractiveness of Indian equities for some overseas investors.
“There are two main reasons for the underperformance of the benchmark index. The first is a slowdown in earnings growth, and the second is that this slowdown is leading to capital rotation from large-cap to mid- and small-cap companies, which have been doing relatively well in terms of earnings growth,” said Sunny Agrawal, head of fundamental research at SBI Securities.
“At the same time, a few global investors have rotated out of Indian large caps and have been encashing on the global AI rally, which was predominantly spread across the US, Taiwan and Korea,” he added.
Agrawal, however, expects the benchmark indices to recover, citing more attractive Nifty50 valuations and expectations of a revival in large-cap earnings. Corporate earnings are expected to grow broadly in line with nominal GDP growth of 10-12%, he said.
“We feel the fair value of the Nifty index over the next 12 months is closer to 28,000-29,000,” Agrawal said.
Feroze Azeez, joint CEO of Anand Rathi Wealth, said historical market performance also provides some comfort that the current downturn could be followed by a recovery.
“If we look at the market’s performance since FY03, the Nifty has never posted two consecutive years of negative returns, and every negative year has been followed by a strong recovery in the year after,” Azeez said.
“We saw this after FY09, FY20 and FY23, when the market bounced back sharply after a weak year. So, while history does not guarantee what happens next, it does give some comfort that the current phase could also be followed by a recovery,” he added.
Azeez said valuations have also become more reasonable, with the Nifty currently trading around 10% below its estimated fair value, leaving room for an upside through the rest of the financial year.
“Earnings growth looks strong, with Nifty 50 earnings expected to grow around 14% in FY27 and 15% in FY28. So, we are currently in a situation where valuations have cooled off, while the earnings outlook remains healthy, which is a positive combination for the market,” he said.
The resilience of domestic institutional investor (DII) flows is another source of support for the market, Azeez said, particularly during periods of heavy FII selling.
“DIIs have put in more than Rs 5.82 lakh crore into the Indian markets this year, including nearly Rs 19,000 crore in September alone,” he said.