Thanks to weak quarterly earnings and persistent foreign outflows, India's market capitalisation (m-cap), as a percentage of market values of all-listed stocks across the world, has dropped 100 basis points to 3.6 per cent now from a high of 4.6 per cent in August 2024. While at a 16-month low, this share still is way higher than the historical average of 2.7 per cent.
The drop in India's m-cap contribution to the world m-cap came at a time domestic benchmark indices have fallen for five consecutive months, the worst since 1996. They have also recorded their second steepest month-on-month decline since March 2020 in February. MOFSL noted that the December quarter earnings were in line with modest expectations, but forward earnings revisions were the weakest in recent times, with downgrades far outpacing upgrades.
From a 2024 peak of 26,277, Indian benchmark Nifty has dropped 14 per cent, marking the sixth-largest drop since the 2008-2009 Great Recession and the second-largest since the Covid-led crash in March 2020. This five-month downtrend, last seen in November 1996, has raised concerns about a potential bear market.
"March has historically been a strong month for market recoveries, with an average gain of 1.7 per cent since 2009 (excluding the 2023 outlier plunge). The Nifty has never recorded six consecutive months of declining prices in history, suggesting a potential rebound," Axis Securities said.
The domestic brokerage said that most investors cannot catch the exact top and bottom, a prudent investing strategy would be to cash in on opportunities, especially when sentiment is so one-sided. One such opportunity is now, the domestic brokerage said.
Vikram Kasat of PL Capital said the market correction has come on the back of global uncertainty, weak earnings growth, and high valuations.
"Mid and smallcap indices are seeing deeper correction, with Nifty Midcap 150 down 18 per cent from its 52-week high and Nifty Smallcap 250 down 23 per cent. Despite the correction, midcap and smallcap stocks continue to be more expensive than their 5-year averages. The decline in largecap stocks and the higher P/B ratios of mid & smallcaps suggest a normalization of valuations,” he said.
Ashika Stock Broking said the combination of tax cuts, lower interest rates and improve liquidity should provide some support to corporate earnings growth going ahead.
"The global trade policy uncertainty could also subside in the next couple of months. Hence, it is expected that on low base of FY25, corporate India could deliver steady earnings growth in FY26 and that would provide another trending market going ahead," it said.