Is Now a Good Time to Invest in the Stock Market?

The stock market is a game of emotions—fear and greed often drive movements. With the Nifty 50 dropping 16% from its September 2024 peak of 26,277, investors are torn between buying the dip or waiting for stability. Is this a golden opportunity, or is more downside ahead?

Markets operate in cycles—what rises must fall, and vice versa. Understanding interest rates, inflation, and corporate earnings can help investors navigate these cycles. This article explores the risks and rewards of investing in today’s volatile environment and how to strategize effectively.

Current Market Scenario

The Indian stock market is experiencing one of its most turbulent phases in recent years. Sharp corrections, liquidity shifts, and global uncertainties have left investors at a crossroads. The question remains—are we at the bottom, or is there more pain ahead?

     • Benchmark Indices in Red: The Nifty 50 has plunged 16% from its peak of 26,277, currently fluctuating around 22,000-22,500 levels. Similarly, the Sensex has tumbled from over 88,000 to approximately 75,000, marking its steepest correction in years.

     • Foreign vs. Domestic Investors: The market has seen a massive exodus of Foreign Institutional Investors (FIIs), who have offloaded over ₹1.5 lakh crore since October 2024. On the flip side, Domestic Institutional Investors (DIIs) have injected ₹1.2 lakh crore, helping to stabilize the market to some extent.

     • Volatility at its Peak: The India VIX (Volatility Index) has surged, reflecting heightened investor anxiety and uncertainty over global and domestic economic conditions.

Sectoral Performance: Winners & Losers

     • Struggling Sectors:

         o IT & Tech – Global demand slowdown and cost-cutting by major US & European clients.
         o mall & Mid-Caps – Despite corrections, many stocks remain overvalued, posing risks.
         o NBFCs – Rising interest rates are squeezing margins, affecting smaller lenders the most.

     • Resilient Sectors:

         o Banking & Financials – Large-cap banks benefit from strong credit growth and stable NPAs.
         o Auto & EVs – Demand for EVs and premium cars remains robust.
         o Pharma & Healthcare – Driven by domestic demand, favorable policies, and exports.
         o Energy & Infrastructure – Government investments in renewables and smart cities fuel long-term growth.

Factors Influencing the Market Decline

Several key factors have contributed to the recent market correction:
     

1. Global Economic Conditions

The Indian market has been influenced by global factors, including the US election cycle that concluded with Donald Trump’s win in November 2024. As the election approached, the US dollar strengthened, leading to capital outflows from emerging markets like India. S. Naren CIO of ICICI Pru notes that FIIs had $800-900 billion invested in India, making it an easy profit-booking target.
     

2. Valuation Concerns

Prior to the correction, Indian markets were considered overvalued compared to other emerging markets. Despite the recent decline, experts like S. Naren point out that while markets are “less overvalued than before,” they have not yet become “cheap” – a crucial distinction for potential investors.
     

3. Foreign Institutional Investor (FII) Selling

From October 2024 to February 2025, there was heavy selling by FIIs, though this has reduced in March 2025. This selling pressure has particularly affected large-cap stocks, making them relatively less overvalued compared to small and mid-cap stocks.
     

4. Shift in Global Interest Rates

Rising interest rates worldwide have affected market valuations. Government bond yields in Germany, Japan, and the US have surged, putting pressure on global equity markets.

The Case for Investing Now

Despite the challenging environment, several arguments support investing in the current market:
     

1. Attractive Valuations

Due to recent corrections, many fundamentally strong stocks are available at more reasonable valuations, making this a potentially good entry point for long-term investors. Large-cap stocks, in particular, have become less overvalued due to continuous FII selling.
     

2. Strong Economic Fundamentals

India remains one of the fastest-growing economies globally, with favorable demographics and increasing consumer spending. The RBI expects the Indian economy to grow at 6.6% in FY 2024-25.
     

3. Government Initiatives

Strong government initiatives in infrastructure, digital transformation, and clean energy position several sectors for future growth. The “Make in India” initiative, PLI schemes, and increased capital expenditure are expected to positively impact economic activity.
     

4. Historical Trends

Historically, March has been a strong month for market recoveries, with an average gain of 1.7% since 2009. Additionally, the Nifty has never recorded six consecutive months of declining prices, suggesting a potential rebound.

The Case for Waiting

On the other hand, several factors suggest caution:

1. Global Uncertainty

Ongoing global market volatility, geopolitical tensions, and interest rate policies could impact Indian markets in the short term. S. Naren believes the market will bottom once there is a meaningful correction in the US market, particularly in the NASDAQ, which he considers still overvalued.
     

2. Inflation Risks

Rising inflation could lead to further rate hikes by the RBI, affecting corporate profits and market liquidity.
     

3. Absence of Clear Bullish Triggers

While the market may be nearing a bottom, a clear bullish trigger has yet to emerge, which experts consider critical for a sustained recovery.
     

4. Small and Mid-cap Valuations

Despite corrections, small and mid-cap stocks remain overvalued compared to large-caps, suggesting selective investment is necessary.

Investment Strategies for the Current Market

1. Focus on Asset Allocation

S. Naren emphasizes that asset allocation has worked much better in the last six months than pure equity investing. Balanced Advantage Funds (BAF), Multi-Asset strategies, and Equity-Debt Hybrids can provide stability during volatility.

2. Systematic Investment Plans (SIPs)

For investors who don’t want to time the market, SIPs in mutual funds offer a way to average costs over time and mitigate risks. S. Naren recommends starting SIPs and Systematic Transfer Plans (STPs) in large-cap and flexi-cap funds.

3. Quality Over Momentum

Rajiv Thakkar, CIO at Parag Parikh Financial Advisory Services, emphasizes investing only in companies that align with four key factors:
     • Promoter Management Quality
     • Business Quality
     • Balance Sheet Strength
     • Reasonable Valuation

4. Sector Selection

Certain sectors have shown resilience despite market volatility:
     • Banking & Financial Services: Showing strength due to credit growth and stable NPA levels
     • Pharmaceuticals & Healthcare: Remaining strong due to increased healthcare spending
     • Energy: While experiencing a steep correction, experts like S. Naren see long-term potential due to essential nature of energy services

5. Large-Caps Over Small and Mid-Caps

Most experts recommend favoring large-cap stocks in the current environment, as they have become less overvalued compared to small and mid-caps, which still remain expensive despite corrections.

Advice for Different Investor Profiles

For Young Investors (25-35 years)

Rajiv Thakkar recommends that young investors with stable income and long-term goals should allocate up to 90% of their funds to equities. He advises against frequent portfolio churn and emphasizes viewing equity investments with a long-term perspective, similar to EPFO contributions or gold investments.

For Middle-Aged Investors (35-50 years)

A balanced approach combining SIPs, diversification across asset classes, and strategic sector investments can help navigate market volatility while building long-term wealth.

For Conservative Investors

Focus on defensive sectors such as FMCG, healthcare, and utilities that provide stability and consistent returns during uncertain times. Keep a cash reserve to take advantage of potential market dips.

Conclusion

The Indian stock market has experienced a significant correction, creating both risks and opportunities for investors. While the market is not as overvalued as it was in September 2024, it has not yet become “cheap” by historical standards. For long-term investors, this environment offers selective opportunities, particularly in large-cap stocks and certain sectors with strong fundamentals.
Rather than trying to time the perfect market bottom, a disciplined approach focusing on quality businesses, sound balance sheets, and reasonable valuations—coupled with systematic investment through IPs—is likely to yield better results over time.
As Rajeev Thakkar, CIO at PPFAS, puts it:
“Equity investing should always be a long-term wealth creation strategy rather than a short-term speculative activity.”
Remember, successful investing is about time in the market, not timing the market. The current correction, while uncomfortable in the short term, may prove to be an opportunity for those with a long-term investment horizon and a disciplined approach.