Is This the Right Time to Enter the Markets?

The recent volatility in Indian markets has left investors grappling with deep portfolio cuts, triggering a wave of fear and uncertainty. Many investors instinctively prefer to stay on the sidelines until market conditions stabilize. However, historical trends indicate that periods of widespread pessimism often provide the best investment opportunities. The key question remains—should one enter the markets now or wait for deeper corrections?

Understanding the Recent Market Volatility

Several global and domestic factors have contributed to the sharp declines in the Indian stock markets. Internationally, trade policies and protectionist measures, such as the US administration’s tariff strategies, have played a significant role in unsettling investor confidence. Moreover, a global shift toward the US dollar as a safe-haven asset has resulted in capital outflows from emerging markets like India.

On the domestic front, economic growth has slowed, and corporate earnings have remained subdued. The third quarter of FY25 saw tepid earnings growth, with Nifty companies posting an average year-on-year increase of just 4%. While banking, non-banking financial companies (NBFCs), healthcare, and capital goods sectors contributed positively, global cyclicals like metals and oil & gas struggled. Sectors dependent on consumer demand, such as cement, chemicals, and retail businesses, also underperformed. However, there are signs of rural demand recovery, though urban consumption remains a concern.

Evaluating Market Sentiment and Global Factors

While global uncertainties persist, recent developments suggest some stabilizing factors. The US administration’s efforts to de-escalate geopolitical tensions in the Middle East and Russia-Ukraine conflicts could reduce market volatility. Additionally, declining crude oil prices might provide relief to Indian corporates by easing input cost pressures and improving profit margins.

Another positive indicator is the dollar index, which has shown signs of weakening after an extended rally. A softening US dollar often encourages foreign institutional investors (FIIs) to return to emerging markets. However, the timing of these fund flows remains uncertain. A combination of global economic slowdown and India’s relative attractiveness as an emerging market could potentially drive FII investments in the near future.

What Lies Ahead for Indian Markets?

India’s economic recovery hinges on demand revival, and market expectations point toward a gradual rebound in FY26. Nifty earnings growth is projected to improve, driven by both fiscal measures (such as tax rationalization in the Union Budget) and potential monetary policy easing by the Reserve Bank of India (RBI). If inflation continues its downward trend, further interest rate cuts could provide additional support to economic expansion.

Despite recent corrections, India’s long-term growth story remains intact. The country’s domestic consumption-driven economy ensures a relatively stable investment environment. Additionally, as long as domestic investors continue allocating capital to equity markets in search of inflation-beating returns, India is likely to remain a favorable investment destination.

Market Valuations – A Compelling Entry Point?

One of the strongest arguments for entering the market now is valuation. The Nifty 50 index is currently trading at approximately 19.1 times one-year forward earnings, below its historical average of 20.5 times. This suggests that the broader market is undervalued compared to its past trends. However, valuations in mid- and small-cap stocks remain elevated in certain cases, making selective stock-picking crucial.

For investors concerned about timing the market perfectly, a phased investment approach—such as systematic investment plans (SIPs) or staggered buying in large-cap indices—can help mitigate risk while capitalizing on lower valuations.

Investment Strategy – How to Approach the Market Now?

Given the current market conditions, the best approach for investors is a combination of caution and optimism:

1. Focus on Large-Cap Stocks – Large-cap stocks, particularly those in defensive sectors such as banking, pharmaceuticals, and IT, offer relatively stable returns and are well-positioned to withstand economic slowdowns.
2. Gradual Market Entry – Instead of making lump-sum investments, investors can opt for a systematic investment strategy, reducing the risk of short-term volatility.
3. Diversification is Key – A well-diversified portfolio with exposure to multiple sectors can provide stability and optimize returns over the long term.
4. Monitor Macroeconomic Indicators – Keeping an eye on inflation trends, RBI policies, and global fund flows can provide insights into potential market movements.

Conclusion

While market corrections can be unnerving, history has shown that they often provide excellent buying opportunities. Current valuations, combined with expected economic recovery and policy support, make Indian equities an attractive long-term investment. While risks persist, particularly from global uncertainties and demand revival concerns, a well-researched and disciplined investment approach can help investors navigate these challenges.

For those willing to take a long-term perspective, entering the market now—especially in large-cap stocks and through a staggered approach—appears to be a prudent strategy. Instead of waiting for an elusive ‘perfect’ entry point, investors should gradually deploy capital and take advantage of the current market weakness to build a strong portfolio for the future.

Market this week

Source: BSE and NSE

• The Indian stock market ended the week on a weak note, with the Sensex falling 424.90 points to close at 75,311.06, while the Nifty declined 149.95 points, settling at 117.25.
• Global economic concerns and persistent foreign institutional investor (FII) outflows continued to weigh on investor sentiment.
• The domestic market saw broad-based weakness, largely influenced by investor concerns over the hawkish stance of the U.S. Federal Open Market Committee (FOMC) minutes.

Weekly Leaderboard

Source: BSE

Stocks that made the news this week:

• Shares of Mahindra & Mahindra (M&M) dropped 6% on February 21, marking its steepest weekly decline in five years. Investor concerns stem from rising competition in the EV segment, potential overvaluation of the stock, and the company’s recent decision to invest in the rights issues of its two subsidiaries—Mahindra & Mahindra Financial Services and Mahindra Lifespace Developers.
• CDSL shares gained following news that NSDL is preparing to launch its long-awaited ₹3,000 crore IPO next month. The IPO will include a complete offer for sale (OFS) from key stakeholders like NSE, SBI, and HDFC Bank, who plan to sell 5.72 crore equity shares. Additionally, NSDL reported a 30% rise in net profit for the December quarter, reaching ₹85.8 crore, with a 16.2% growth in total income to ₹391.21 crore.
• JSW Infrastructure surged 9% on February 21, continuing its two-day rally, after Motilal Oswal identified it as its ‘top pick’ in the ports sector. The brokerage has assigned a target price of ₹330, projecting a 39% upside from its previous close at ₹238. The stock has already gained 11% this week, reflecting investor confidence in the company’s growth potential in the ports industry.