Sensex's 10,000-Point Decline: Can Patient Investors Regain Market Momentum?

Market Watch: Sensex Hovers Around 75,000, Investors Advised to Stay Patient

The Indian stock market continues to experience a prolonged period of stagnation, with the Sensex hovering around 75,000. This is approximately 10,000 points below its September 2024 peak of over 85,900. Despite the frustration of watching portfolios move sideways for months, market history suggests that long stretches of weak or flat returns often lay the foundation for stronger gains later.

Market analysts point out that the biggest Sensex drawdowns in history have been attributed to the 1992 Harshad Mehta crash, the 2008 global financial crisis, and the 2020 Covid crash. These crashes have had varying recovery times, ranging from six months for fast drawdowns to two to four years or longer for severe multi-year crashes.

According to Madhupam Krishna, SEBI RIA and founder of WealthWisher Financial Planners & Advisors, the key to navigating market downturns is to stay invested long enough for the market to move from a "flat and frustrating" phase to a "recovering and compounding" phase.

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Current Scenario

The current market is facing several risks, including US-Iran escalation, oil price volatility, currency risk, and earnings disappointment. If crude oil prices remain high, India may face higher inflation pressures, a weaker rupee, and slower margin recovery. Additionally, foreign flows remaining weak can lead to compressed valuations even when businesses are decent.

Krishna notes that the biggest risks at current market levels are valuation risk, earnings disappointment, inflation persistence, liquidity tightening, and geopolitical shocks. When companies experience a series of subdued quarters, future returns can be lower if prices are ahead of earnings. If corporate profits do not grow as expected, stocks can de-rate even if the economy is stable.

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Recently, out of 50 Nifty companies, 38 have declared results. The picture is not bright, with revenue growth at +13.87% YoY and earnings growth at +6.94% YoY. This is the fifth straight quarter of single-digit growth.

What Investors Must Understand

Flat or weak markets have historically rewarded patient investors because compounding works even when prices stagnate. Krishna points out that Indian equities have still delivered around 10-12% long-term annualised returns despite extended volatile or low-return phases.

Investing Strategy

Investors who systematically accumulate strong companies during dull phases typically outperform those chasing short-term momentum and market-timing cycles over the long run. According to Anuj Jain, smallcase manager, CIO and Co-Founder, Green Portfolio Private Limited, when earnings continue growing during flat markets, future upside quietly builds through improving fundamentals and valuation normalisation potential.

Recovery Time

Recovery time depends on the depth of the fall, but the broad pattern is clear. Krishna notes that shallow corrections recover much faster than major crashes. Market history review shows that corrections typically bottomed in about five months and then recovered in about four more months, while major crashes took much longer.

What Should Investors Do?

A sensible 3-5 year retail structure is to keep a core-satellite approach. For retail investors, the right approach over 3-5 years is to stay diversified, keep some cash for corrections, and focus on quality businesses with steady earnings, strong balance sheets, and reasonable valuations. According to Jain, there are so many risks, and any of them can become big. Keep an emergency reserve so you are not forced to sell equity during a correction. Avoid chasing the most crowded segment of the market; the highest returns often come with the largest drawdowns.

Conclusion

Despite near-term volatility and slower NIFTY earnings growth, India's long-term wealth creation story is intact. According to Krishna, investors must stay patient and focused on the long-term, as compounding works even when prices stagnate.