Sensex, Nifty sink 15% YTD: Is the market correction far from over?

Indian equities have faced sustained selling pressure in 2026, with the Sensex and Nifty falling nearly 15% and 14%, respectively, making Indian markets among the worst-performing markets globally.

Rising crude oil prices, higher global bond yields amid the West Asia crisis and persistent foreign investor outflows have weighed on sentiment. Foreign institutional investors (FIIs) have remained net sellers, offloading over ₹4 lakh crore so far this year, while domestic institutional investors (DIIs) have bought ₹6.8 lakh crore. In October so far, FIIs have sold a net ₹39,779 crore, against DII purchases of ₹40,355 crore.

In the latest episode of Fortune India Boardroom, Kalpen Parekh, Managing Director and CEO of DSP Mutual Fund; Navneet Munot, Managing Director and CEO of HDFC Asset Management Company; and Vinay Jaising, CIO and Head of Equity Advisory at ASK Private Wealth, share their views on Indian equities, valuations, FPI flows, earnings and the impact of oil prices, while discussing what investors should watch going ahead. The three experts believe that valuations, earnings growth and disciplined asset allocation matter more than trying to predict the market’s next move.

‘The future is unknowable’

Parekh of DSP Mutual Fund said investors should avoid getting caught up in forecasts and instead assess valuations against their long-term return expectations. While Indian equities have corrected and several quality companies have moved closer to their fair value, he cautioned that lower prices alone do not guarantee an immediate recovery.

“Broadly, valuations are somewhere in the middle. They were expensive three to five years back. They are not cheap, but they are coming closer to intrinsic value, to fair value,” Parekh said.

He added that investors expecting annualised returns of 10-12% over the next decade, against interest rates of around 7%, would be setting reasonable expectations. Rather than trying to predict foreign portfolio investor (FPI) flows, investors should increase equity exposure when valuations are attractive and consider hybrid or fixed-income investments when they are not.

Large caps look more attractive

HDFC AMC’s CEO Munot said the correction has taken two forms: a price correction, with several stocks declining, and a time correction, with the Nifty remaining largely flat for two years. This has made a significant part of the market more reasonably valued.

“Equities are looking attractively placed if you are investing with at least a three- to five-year perspective,” Munot said, adding that valuations look particularly reasonable in the large-cap segment.

He pointed to the long-term compounding potential of Indian equities and the importance of remaining disciplined through economic and market cycles. While foreign investors have reduced their ownership in Indian equities, sustained systematic investment plan (SIP) flows have increased domestic participation and helped reduce market volatility.

Munot also expects foreign portfolio flows to improve over time as earnings growth recovers and relative valuations become more attractive.

Earnings growth and valuations remain key

Jaising of ASK Private Wealth said investors should look beyond benchmark indices and assess opportunities across India’s wider universe of listed companies. He noted that earnings growth momentum has improved, particularly among smaller companies, even as Indian equities face competition from global markets benefiting from artificial intelligence-led growth.

He said investors must weigh earnings prospects against valuations and diversify across asset classes. Gold, overseas markets and equities can play different roles in portfolios, depending on valuations and the prevailing investment environment.

Parekh, meanwhile, warned against extrapolating short-term earnings growth in sectors such as defence, engineering and industrials into long-term growth assumptions. Companies reporting strong growth for a quarter or a year may not sustain that pace indefinitely, making high valuation multiples risky.

Oil and global flows remain risks

Munot said elevated crude oil prices pose a near-term challenge, but expects supply to grow faster than demand over the next several years, potentially easing the pressure on India’s macroeconomic outlook. He also pointed to India's lower energy intensity compared with a decade or two ago.

On foreign flows, Parekh cautioned that their timing is unpredictable, while Jaising said global capital is being drawn towards markets and companies benefiting from the AI investment cycle.

The experts' broader message is that the correction has improved opportunities in parts of the market, but investors should remain selective, focus on earnings and valuations, and maintain a long-term investment horizon rather than assume that a sustained rally is imminent.

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