Expert View: Don’t wait for Nifty to stabilise, buy the dip, says Shweta Rajani of Anand Rathi Wealth

Indian equities are facing a mix of challenges, from elevated crude oil prices and geopolitical uncertainty to questions around US monetary policy and foreign investor flows. As volatility remains elevated, investors are weighing whether to wait for greater stability or use the correction to accumulate.

In an interview with LiveMint, Shweta Rajani, Associate Director, Anand Rathi Wealth Limited, shared her views on the Nifty 50 and Sensex, the potential impact of crude oil above $95-$100, the US Fed's next policy decision and why investors should continue SIPs.

What is your Nifty Sensex target for December 2026?

The Nifty 50 and Sensex are currently around 11 to 13% below their respective one-year highs, so the market has already seen a meaningful correction from the peak. At these levels, there is currently no meaningful froth in the equity market, with the Nifty 50 trading around 10 to 12% below its estimated fair value based on forward earnings. This suggests that valuations are not stretched and the market retains room for upside as earnings play out.

There are uncertainties around crude oil, US Fed policy and geopolitical developments, which could keep volatility elevated, but a long-term investor should not focus on predicting when the market will recover or reach a particular level. SIPs should continue, as periods of uncertainty and market weakness allow investors to accumulate more units at relatively attractive valuations, which can be valuable over the full investment cycle.

Is the Nifty headed for another leg of correction, or is a rebound around the corner?

The Nifty could still see some volatility in the near term, so it would be difficult to say that the correction is definitely over, but investors should look at this as a long-term opportunity rather than trying to call the exact bottom.

The Nifty 50 has delivered negative returns over the last two years, and historically, whenever such a phase has occurred, the average return over the subsequent five years has been 21.9% per annum, with an 80% probability of returns exceeding 11%. This suggests that rather than trying to predict whether the next move will be another correction or a rebound, investors with a long-term horizon should use the current weakness to stay invested and accumulate.

Should investors buy the dip or wait for Nifty to stabilise before entering?

For long-term investors, the current correction is an opportunity to buy rather than a reason to wait for the Nifty to stabilise. SIPs should continue as usual, while those with a lump sum can consider deploying it gradually in 5 to 6 tranches over the next few weeks rather than trying to identify the exact market bottom. This will allow investors to participate in the recovery while spreading their investment across different market levels.

How much damage can crude oil above $95-$100 do to Indian stocks?

Crude oil above $95 to $100 can certainly create some pressure on Indian equities, particularly because India is a large importer of oil, but history suggests that the impact need not be as severe or as lasting as the market often fears. In 8 instances since 2000 when global crude prices saw sharp increases, the average rise was over 150%, yet the increase in retail petrol and diesel prices in India was 10% or lower as the impact was passed on gradually.

More importantly, India’s GDP growth remained fairly resilient, averaging 6.2% in the year before the price rise, 7.2% during the rise and 6.7% in the following year, while retail inflation moved from 5.3% to 5.8% and 5.9% respectively. This suggests that even sharp increases in crude have not historically caused major damage to India’s growth or inflation, although they can lead to near-term volatility in equities.

Geopolitical events have also typically resulted in Nifty 50 drawdowns of around 5% on average, with markets recovering in roughly a month. India is also gradually building alternative energy capacity and reducing its dependence on imported fuel, although this transition is still at an early stage. Unless higher crude prices become a prolonged problem, the impact is more likely to be a period of volatility than a lasting setback for Indian stocks.

Which sectors could outperform if the current market correction continues?

Export-oriented sectors such as IT, pharma, textiles and specialty chemicals could be relatively better placed, particularly if the rupee remains weak, as a larger share of their overseas revenues can translate into better rupee realisation. Capital goods and infrastructure could also remain well positioned over the longer term, supported by the ongoing investment cycle and domestic capex. However, for investors, though, the bigger point is not to chase the sectors that may outperform during a correction, but to remain diversified across sectors, market caps and investment styles, because market leadership can change quickly and no single sector is likely to outperform through every phase of the cycle.

Are large-cap stocks becoming more attractive after the recent sell-off in the broader market?

Yes, large caps are looking more attractive after the recent correction, particularly from a long-term perspective. The Nifty 50 and Nifty 100 have both underperformed over the last two years, with two-year CAGRs of less than -1.5%, while their 10-year CAGRs remain healthy in the range of 10 to 11%. At current valuations, this makes large caps worth considering, especially as they offer better liquidity, stronger balance sheets and relatively more predictable earnings, which tend to matter more when the market becomes uncertain. However, investors should participate in large caps through diversified equity mutual funds and keep the large-cap allocation around 50 to 55% in the portfolio.

Will FII selling continue to weigh on Indian equities, or can domestic investors absorb the pressure?

FII selling may continue to create short-term pressure, but the domestic investor base is now strong enough to absorb a meaningful part of it. August 2026 saw FIIs as net buyers with inflows of ₹29,631 crore, their highest monthly inflow in 23 months, marking the first sustained two-month buying streak after four months of heavy selling and suggesting a possible shift in sentiment. At the same time, DII and retail participation remains strong, providing steady liquidity to the market. If FII buying continues through September, particularly if US-Iran tensions ease, it could support a broader re-rating of Indian equities rather than merely a temporary recovery.

What will the US Fed's next policy decision mean for Indian stocks, the rupee and FII flows?

The Fed’s next policy decision will be important for Indian markets because it can influence the dollar, the rupee and global risk appetite at the same time. A pause or rate cut would generally be positive for India, as lower US yields and a softer dollar could ease pressure on the rupee and encourage FII flows back into Indian equities.

On the other hand, if the Fed stays hawkish because inflation remains sticky, particularly with crude oil now above $100, US Treasury yields could remain elevated and the stronger dollar could put further pressure on both the rupee and FII flows. With US inflation, the Fed meeting and geopolitical risks all coming together in September, a hawkish surprise could add to near-term volatility in Indian equities.

With market valuations and volatility still elevated, should investors continue SIPs unchanged or adjust their allocation strategy?

Investors must continue their SIPs, particularly at a time when the market has already gone through a meaningful price and time correction and valuations have become more reasonable. Stopping SIPs during an uncertain phase can mean missing the opportunity to accumulate more units at current levels, which can be valuable when markets recover.

For investors looking to manage volatility better, maintaining around 50 to 55% allocation to large caps, 20 to 25% to mid caps and the balance to small caps can provide a good balance between stability and growth, while allowing the portfolio to participate across different parts of the market cycle.

Are inflows into equity mutual funds sustainable at current levels, and what could trigger a slowdown in investor participation?

Equity mutual fund inflows have remained healthy because investors are continuing to invest despite the market delivering relatively muted returns. Active and passive equity funds together saw net inflows of ₹38,959 crore in August, while SIP inflows reached a record ₹32,300 crore, up 14% year on year and remaining above ₹30,000 crore for 8 out of 9 months. Investors are also showing a preference for mid-cap and small-cap funds, while multi-cap and flexi-cap remain popular choices for very long periods of time.

If market volatility persists, there could be periods of temporary disruption, but investors should remember that equity participation is a long-term journey. Short-term market movements should not distract investors from their long-term goals or lead them to change a strategy that is designed to create wealth over time.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.