When will the stock market stop falling?

The fact that the Nifty started the year at an all-time high has been forgotten. Sentiment has changed significantly in the last few weeks, and the market seems to be in a downtrend.

The Nifty is down about 3% in 2026 so far at the time of writing. The broader market of midcaps and smallcaps has fallen more than the bluechips. The BSE SmallCap is down almost 8% and the BSE MidCap is down 5%.

As mid-caps and small-caps form the bulk of retail investors’ portfolios, the pain has been acute, which, in turn, has badly impacted sentiment on Dalal Street.

Is this correction a temporary phase before a bull run, or is there cause for concern?

We want to be clear that in this editorial, we are not going to make a prediction as to the timing of the stock market recovery, but we will examine why the stock market is falling and when it might recover.

Why the Indian stock market is falling

By and large, there are three broad reasons why the stock market is falling…

1. Pending US trade deal

India and the US have been working on a trade deal for many months, but some issues have become key roadblocks. The imports of Russian oil have been one such point of contention.

US President Donald Trump has backed legislation to impose up to 500% tariffs on countries that import Russian oil.

There is no clarity on the status of the trade talks, even though the media has reported that they have reached an advanced stage and many points have been agreed upon.

There were reports that the deal would be done by March, but there is neither an assurance nor clarity on that timeline from either side.

The markets don’t like uncertainty, especially on such an important issue. Dalal Street wants the 50% tariff on India removed and a mutually favourable trade deal done as soon as possible.

The longer this issue drags on, the worse it will be for sentiment.

2. Slow earnings recovery

The Indian stock market is poised for good returns over the long term, but only if earnings growth picks up. The last few quarters have not seen a good performance from corporate India on this front.

So, investors are in a wait-and-see mode right now. The market expects the ongoing earnings season to signal a recovery in sales and profit growth.

However, now that results have started coming in, the thinking on Dalal Street is that a full earnings recovery will take a few more quarters. Until then, there is no need to factor in high earnings growth.

The tapering of expectations for a fast earnings recovery will cause hesitation among many investors, especially institutional investors.

3. Geopolitics

The US action in Venezuela, Trump’s threats against Greenland, and heightened tensions against Iran have worried investors.

The last thing markets want is another major war. Trump’s aggressive foreign policy has rattled markets and resulted in continued selling by FIIs.

The relentless FII selling, the pending trade deal with the US, and the falling rupee are other factors that have made investors nervous.

Heightened geopolitical tensions in an uncertain economic environment have heightened investors' perceived risk.

When will the market recover?

It’s difficult to predict the timing of the recovery, but we can say with confidence that a recovery is inevitable. Over the last few years, the stock market has seen many so-called ‘corrections’. None have been severe enough to be considered a crash or a bear market.

This is because of the massive fund flows into the stock market from the pockets of domestic institutional investors (DIIs).

According to a report in the Mint, in 2025, the massive inflows from DIIs, ₹7.44 trillion, completely dwarfed the FII selling of ₹1.66 trillion.

Thus, the markets are not in danger of a collapse as long as the DII money keeps flowing in.

As far as a recovery is concerned, this will depend on two main factors. Investors should be alert to both of them:

• A change in FII outflows to inflows

• A pick-up in earnings growth

Other factors to track are the trade deal with the US, geopolitical flare-ups, and, in the short term, the Union Budget.

Conclusion

Equitymaster, has been in the market for over 30 years, and there is one thing we know for certain:

No one can predict the future, and more importantly, no one should attempt to do so. We strongly believe that time in the market is far more important than market timing.

In the long term, the Indian stock market will go up along with the Indian economy.

Instead of trying to anticipate or react to every small market move, a better approach would be to build a watchlist of high-quality stocks and act on them when valuations become reasonable.

Do your due diligence. Consider factors such as valuation, industry trends, corporate governance, and market risks before making any investment decisions.

In this uncertain environment, if you are concerned about the stocks in your portfolio, then ask the following questions:

• Are the company’s fundamentals weak?

• Have there been any recent negative changes in the company’s fundamentals?

• Did the P/E ratio shoot up without an improvement in the company’s earnings?

• Did you make a mistake in your original analysis at the time of buying?

These are all good reasons to sell or at least reduce your holdings. As with any stock, you must allocate sufficient time for due diligence.

If the answers to the questions above are a clear 'NO', then you can consider holding on, especially if the valuations are not expensive.

And if the fundamentally strong stocks on your watchlist become available at reasonable prices, i.e., a low valuations, then you can consider them.

The best stocks to invest in right now—as long as their long-term fundamentals are strong—are the ones that have fallen due to short-term, sentimental reasons.

Happy investing.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.

This article is syndicated from Equitymaster.com.