{"id":34341,"date":"2026-03-31T09:34:58","date_gmt":"2026-03-31T04:04:58","guid":{"rendered":"https:\/\/www.fundsindia.com\/blog\/?p=34341"},"modified":"2026-03-31T11:56:14","modified_gmt":"2026-03-31T06:26:14","slug":"indian-equity-markets-decline-what-should-you-do","status":"publish","type":"post","link":"https:\/\/www.fundsindia.com\/blog\/mf-basics\/investment-definitions\/indian-equity-markets-decline-what-should-you-do\/34341","title":{"rendered":"Indian Equity Markets Decline \u2013 What Should You Do?"},"content":{"rendered":"\n
\"\"<\/a><\/figure>\n\n\n\n

The last few weeks have <\/strong>been quite volatile for equity markets, with a lot of news and happenings around the world. <\/p>\n\n\n\n

\"\"<\/a><\/figure><\/div>\n\n\n\n

What happened?<\/span><\/strong><\/h2>\n\n\n\n

Sensex is down ~16%!<\/span><\/strong><\/h4>\n\n\n\n
\"\"<\/a><\/figure><\/div>\n\n\n\n

This leads to the inevitable question\u2026<\/p>\n\n\n\n

Is the current market decline a small temporary fall or the start of a large market crash?<\/strong><\/p>\n\n\n\n

<\/div>\n\n\n\n

Let me start with an honest confession\u2026<\/p>\n\n\n\n

I don\u2019t know. Neither does anyone else. <\/strong><\/p>\n\n\n\n

Since we can\u2019t predict the future, the real question is: How do we navigate this market decline?<\/em><\/p>\n\n\n\n

This is where our framework comes in – helping us assess where we are in the market cycle<\/em> and planning in advance <\/em>for different scenarios.<\/p>\n\n\n\n

What does history tell us about market declines?<\/span><\/strong><\/h2>\n\n\n\n

The last 46+ years history <\/strong>of Sensex<\/strong>, has a simple reminder for all of us. <\/p>\n\n\n\n

Indian Equity Markets Experience a Temporary Fall EVERY YEAR!<\/span><\/strong><\/h3>\n\n\n\n
\"\"<\/a><\/figure><\/div>\n\n\n\n

In fact, a 10-20% fall <\/strong>is almost a given<\/strong> every year! <\/strong><\/p>\n\n\n\n

In fact, there were only 5 <\/strong>out of 45 calendar years <\/strong>(1984, 2014, 2017, 2023, 2025) where the intra-year decline was less than 10%<\/strong>.<\/p>\n\n\n\n

But here comes the good part. While markets faced intra-year declines<\/strong> of 10-20% almost every year<\/strong>, 3 out of 4 years still ended <\/strong>with positive returns<\/strong>, showing that these declines were usually short-lived, with recoveries happening within the same year.<\/strong><\/p>\n\n\n\n

\"\"<\/a><\/figure>\n\n\n\n

Now that we understand how common a 10-20% decline is, let\u2019s assess the current market decline. At ~16% off the peak, this decline falls well within historical norms. <\/strong>Viewed in context, there\u2019s nothing unusual or surprising about it!<\/p>\n\n\n\n

But what about the larger falls (>30%)?<\/span> <\/strong><\/h3>\n\n\n\n

Let us again take the help of history to form a view on how common it is for the market to have a fall of more than 30%.<\/p>\n\n\n\n

\"\"<\/a><\/figure>\n\n\n\n

As seen above, a sharp fall <\/strong>of 30-60% is a lot less frequent<\/strong> than the 10-20% fall. They usually occur once every 7-10 years.<\/strong><\/p>\n\n\n\n

These sharp declines have also been temporary<\/strong>, as the Indian equity markets have consistently recovered<\/strong> and moved upward <\/strong>over the long run<\/strong>, driven by earnings growth.<\/strong><\/p>\n\n\n\n

\"\"<\/a><\/figure><\/div>\n\n\n\n
Now that leads to the next important question.<\/strong><\/h5>\n\n\n\n

Since every large decline will eventually have to start with a small decline, how do we differentiate between a normal 10-20% fall vs the start of a large market crash?<\/span><\/strong><\/h4>\n\n\n\n

The equity market cycle can be viewed in three phases \u2013 1) Bull, 2) Bubble and 3) Bear. <\/strong><\/p>\n\n\n\n

When in a \u2018Bubble Phase\u2019, the odds of a 10-20% correction converting into a large fall is very high. <\/strong><\/p>\n\n\n\n

How do you check for a Market Bubble?<\/span><\/strong><\/h3>\n\n\n\n

A Bubble as per our framework is usually characterized by<\/p>\n\n\n\n

  1. \u2018Late Phase\u2019 of Earnings Cycle<\/strong><\/li>
  2. \u2018Very Expensive\u2019 Valuations <\/strong>(measured by FundsIndia Valuemeter)<\/li>
  3. \u2018Euphoric\u2019 Sentiments <\/strong>(measured via our FINAL Framework \u2013 Flows, <\/strong>IPOs, Surge in New Investors, Sharp Acceleration in Price, Leverage)<\/li><\/ol>\n\n\n\n

    We evaluate the above using our Three Signal Framework <\/strong>and Bubble Market Indicator (built based on 30+ indicators)<\/strong><\/p>\n\n\n\n

    What is our current evaluation?<\/span><\/strong><\/h3>\n\n\n\n

    Evaluating the above 3 signals, currently we see no signs of a market bubble<\/strong> as we are in<\/p>\n\n\n\n

    1. Cheap Valuations <\/strong>(and not \u2018very expensive\u2019)<\/li>
    2. Mid Phase of Earnings Cycle <\/strong>(and not \u2018late phase\u2019)<\/li>
    3. Balanced Sentiments <\/strong>(no signs of \u2018euphoria\u2019)<\/li><\/ol>\n\n\n\n

      Overall, our framework suggests that we are not in an extreme bubble market scenario. <\/strong><\/p>\n\n\n\n

      Putting all this together \u2013 Here is the answer for your question<\/span><\/strong><\/h4>\n\n\n\n

      The likelihood of the current fall converting into a large fall (>30%) is very low. <\/strong><\/p>\n\n\n\n

      There is always a \u2018BUT\u2026\u2019<\/span><\/strong><\/h4>\n\n\n\n

      But, what if despite us not seeing a bubble at the current juncture the market corrects more than 20% (as there is still a low probability)?<\/span><\/strong><\/h3>\n\n\n\n

      As mentioned in the beginning, while the odds of a large fall is very low, there is still a small probability that this becomes a large fall. The good part is that if we get a large fall where the starting conditions are not indicating a bubble, the recoveries usually tend to be very sharp and swift (example – 2020 recovery post covid crash). <\/p>\n\n\n\n

      \"\"<\/a><\/figure><\/div>\n\n\n\n

      This simple insight can be converted into our advantage if we are able to deploy more money into equities from our debt\/gold portion at lower market levels during a sharp market fall. <\/strong><\/p>\n\n\n\n

      In other words if we get a fall of more than 20% correction (read as Sensex levels below 69,000), then it\u2019s a great opportunity to increase your equity exposure. This can be put into action via the \u2018CRISIS\u2019 plan<\/strong>. Here is how it works:<\/p>\n\n\n\n

      Pre-decide a portion of your debt\/gold allocation (say Y) to be deployed into equities if in case market corrects from current peak levels (86k)<\/strong><\/p>\n\n\n\n

      1. If Sensex Falls by ~20% (at 69,000 levels) \u2013 Move 20% of Y into equities<\/li>
      2. If Sensex Falls by ~30% (at 60,000 levels) \u2013 Move 30% of Y into equities<\/li>
      3. If Sensex Falls by ~40% (at 52,000 levels)  \u2013 Move 40% of Y into equities<\/li>
      4. If Sensex Falls by ~50% (at 43,000 levels)  \u2013 Move remaining portion from Y into equities<\/li><\/ol>\n\n\n\n

        *This is a rough plan and can be adapted to based on your own risk profile<\/p>\n\n\n\n


        While this may feel counterintuitive and could bring short-term pain if markets continue to fall, remember – past declines always look like opportunities in hindsight, while current declines always feel like risks.<\/strong><\/p>\n\n\n\n

        How you respond to this decline – embracing it as an opportunity or letting fear drive you out of equities will ultimately define your success as a long-term investor.<\/p>\n\n\n\n

        So, what should you do now in your portfolio?<\/span><\/strong><\/h2>\n\n\n\n

        Since this decline didn\u2019t start from a bubble, the odds of it turning into a major crash are low. <\/p>\n\n\n\n

        So at the current juncture,<\/p>\n\n\n\n