On September 26, 2024, Sensex hit a lifetime closing high of 85,836.12. Two years later, on September 25, 2026, the 30-share index closed at 73,895.74, down 13.91% from its highest ever close.Foreign investors take out record money, rupee on a depreciating spree, bloodbath on Dalal Street – these are the headlines that have dominated the stock market circuit for two years now.What’s gone wrong? From being a stock market that outperformed emerging market peers, and was rising at a break neck speed, what bump has hit it so hard?
No sudden crash, just a sideways movement that persists
The stock market’s performance of late has been marked less by a sharp collapse and more by a prolonged period of muted returns. The market has struggled to generate strong gains, even as the underlying market has continued to change.One important feature of the current phase is the difference between a price correction and a time correction. Unlike the sharp fall and rapid recovery seen during the Covid crash, the present cycle has been characterised by prolonged sideways movement.History shows that such periods can last for years. The Sensex took nearly five years to recover from the 1994 correction, while the fall following the 2000 technology bubble took almost four years from the start of the decline to recovery. The 2008 financial crisis also required more than three years for the fall and subsequent recovery to play out.
History shows market corrections can be sticky
“Investors accustomed to swift, V-shaped market recoveries post-2020 have learned that markets can correct through time rather than price. By moving sideways for two years, the market didn’t violently crash, but instead allowed trailing corporate earnings to slowly catch up with previously overstretched valuations – bringing the Sensex P/E multiple down to a much healthier ~19.8x,” Nandish Shah, AVP– PCG Research & Advisory, Motilal Oswal Financial Services tells TOI.
Why is the stock market struggling to deliver returns?
Multiple factors have worked against the market, each adding to the selloff, and gradually.Initially, the selloff was driven by a disconnect between valuations and earnings growth.“India’s premium valuations moderated as earnings growth slowed amid persistent global inflation and weakness in pending demand,” Vinod Nair, Head of Research, Geojit Investments Limited tells TOI.The correction was further amplified by geopolitical tensions, trade-related uncertainties and recurring supply-chain disruptions, leading to a rotation of foreign capital towards other developed and emerging markets, particularly those benefiting from AI-driven investment themes.“The sustained FII outflows have resulted in a narrower market, making stock selection increasingly important and shifting market leadership towards domestically driven themes supported by strong domestic inflows,” Vinod Nair tells TOI.Yet another point to understand is that indices like Sensex see heavy ownership from FIIs which have exited post earnings slowdown. Also the banking and IT sectors together contribute more than 50% and they have their own set of challenges.As Nandish Shah points out: the Indian equity market has transitioned out of its high-growth phase (which saw a 24% CAGR between FY21 and FY24) into a period of anaemic, single-digit growth.“In FY25, Sensex EPS growth was 1.3% while for FY26, growth was around 5%. BFSI and Information technology has the largest sectoral weightage in the Sensex which saw muted performance in earnings,” he tells TOI.The relentless and aggressive selling from FIIs has been one of the most massive headwinds for the markets in the last 2 and half years.In 2024 & 2025, we saw net selling to the tune of nearly Rs 6 lakh crores and CY26 till date, selling has been around Rs 3.70 lakh crores.“Additionally, the market was hit by global shocks one after another. US tariff flip-flops, new AI tools triggered a sharp sell-off in IT stocks, higher crude oil prices along with depreciating rupee added to the pressure,” says Nandish Shah.The weakness has also been concentrated across sectors. IT companies have faced pressure from factors including the impact of artificial intelligence on the traditional billable-hour model.HDFC Bank faced margin pressure following its merger, while regulatory changes affected HDFC Life. Consumer companies such as Hindustan Unilever and Asian Paints also faced rising input costs and greater competition.
Nifty50 laggards
Beyond the fundamental factors, Hitesh Tailor, Technical Research Analyst at Choice Broking says the index is currently undergoing a prolonged consolidation phase.The sectoral performance has remained highly divergent during this period, with several sectors witnessing sharp swings and prolonged consolidation.“From a technical perspective, IT, financials, automobiles and some other major sectoral indices have faced periods of relative weakness, while selective pockets have maintained stronger price structures. Among them, the BSE Healthcare Index has clearly shown better relative performance and has outperformed the broader market. This sectoral divergence indicates that the market has been witnessing significant rotation, with strength concentrated in selected sectors rather than being broad-based,” he tells TOI.At the same time, the market’s prolonged stagnation has not been accompanied by a complete deterioration in the economy. Nominal GDP, corporate revenues and profits have continued to grow. This has allowed earnings and valuations to gradually catch up even while the major indices remained subdued. SIP flows have remained resilient.
What is the road ahead?
Experts say the biggest lies in understanding that markets not only correct through crashes; they also correct through time.The Sensex has spent two years going sideways while company earnings kept growing, and that has quietly made valuations more reasonable.According to Nandish Shah this is not unusual. “After the January 2008 peak, the Sensex did not post a fresh record close until October 2013, and patient investors were rewarded in the decade that followed,” he tells TOI.This period also shows that price follows earnings over the long run, he says.“The next sustained rally will most likely need a visible recovery in corporate profits, not just liquidity. Investors should watch earnings upgrades, credit growth and consumption demand more closely than index levels. IT stocks, which were once considered favourite, have been disrupted by AI. Future winners may come from different parts of the economy, so investors should not assume that past leaders will lead again,” he explains.From a technical perspective, Hitesh Tailor of Choice Broking sees Sensex currently positioned between important long-term support and overhead resistance, making the 73,500–74,000 support zone and 79,300–80,000 resistance zone crucial levels to monitor.“A sustained move above the resistance zone, supported by broader market participation, would improve the technical structure, while a decisive breakdown below the long-term support zone could increase downside pressure. Until a clear directional breakout emerges, a selective and disciplined approach based on relative strength and technical setups remains relevant,” he says.
Time spent by Sensex 20% below market peak
The bottom line
Ultimately, the road ahead for the Indian stock markets depends on a few clear triggers. These include foreign investors returning, stable crude prices, clarity on global trade, and an earnings upcycle.“Until these fall into place, volatility is likely to continue. For long-term investors, disciplined SIPs through this period mean buying at better prices than in 2024. Consolidation phases have historically laid the base for the next bull run, not marked the end of the India story,” Nandish Shah says.Vinod Nair believes that for investors, the key takeaway is that this extended correction could lay the foundation for the next bull market, supported by the resilience of the Indian economy despite external challenges.“Stock selection remains essential, with a focus on the quality of businesses to generate long-term alpha. Large-cap stocks generally offer greater stability, led by stronger pricing power, and more dependable income potential even during volatile periods,” he tells TOI.(Disclaimer: Recommendations and views on the stock market, or any other asset classes or personal finance management tips given by experts and analysts are their own. These opinions do not represent the views of The Times of India.)
