80% of Indian Stocks Are in Bear Market: Is It Time to Be Greedy or Fearful?
The current state of Indian stocks presents a perplexing dilemma. While the Sensex and Nifty indices have only seen a modest correction of about 6-7% from their all-time highs, a deeper and more brutal bear market has been quietly affecting the broader sector for the past eighteen months. Here are the key insights:
– Over 64% of companies listed with a market capitalization exceeding Rs 1,000 crore have plunged 30% or more from their previous highs.
– Nearly 78% have experienced a fall of 20% or more.
– This means that roughly 80% of India’s listed universe above Rs 1,000 crore is entrenched in bear market territory, with the outlook even graver when smaller firms are included.
The Unique Bear Market Situation
A report from Monarch AIF describes the last year-and-a-half as a “peculiar phenomenon” in Indian markets characterized by dual time and value corrections. Amidst a backdrop of elevated indices driven by a select few large-cap stocks, hundreds of midcap and small companies have faced significant declines. Such a disparity is regarded as very rare.
Recent geopolitical events, particularly the US-Israel tensions involving Iran, have further exacerbated the situation. On Monday, the Sensex plummeted by over 1,000 points, and the Nifty fell below 24,900. Investors now grapple with multiple challenges: an already bruised market from eighteen months of stealth selling, a crude oil shock, and an impending geopolitical conflict.
Is the Bear Market Hidden in Plain Sight?
Aruna Giri, Founder and CEO of TrustLine Holdings, observes that this scenario feels less like a visible crash and more like a concealed sell-off, especially among small and mid-cap stocks. “Historically, such phases are painful, but they are also when long-term opportunities quietly begin to build,” Giri remarks.
Current Market Dynamics
Several recent instances illuminate the disproportionate negative price action:
– UPL shares fell by 18% following a restructuring announcement, despite the debt situation being previously known.
– IDFC Bank lost over Rs 14,000 crore in market capitalization due to potential fraud related to Rs 590 crore.
– Dishman Carbogen Amcis saw a 10% drop following a minor downgrade from a rating agency.
Giri notes that markets are presently “less forgiving.” However, amidst this turmoil, a significant shift is underway. Monarch AIF reports that 36% of companies above Rs 1,000 crore market cap now trade at trailing twelve-month P/E ratios below 25x, compared to just 25% in September 2024. Moreover, many small but rapidly growing firms are available at one-year forward P/E multiples of less than 20x.
The Resilience of Smaller Firms
The sell-off conceals the robust fundamentals of certain smaller companies. Profit before tax in the bottom half of the listed market (by capitalization) grew at a CAGR of approximately 20% from 2019 to 2025, with PAT growth around 25%. Notably, the net debt-to-equity ratio for these companies stands at a mere 0.13x, while revenue growth averaged 14% over the past three years, outpacing the top half’s 11%.
Rate Cuts and Recovery Potential
Past data reveals that following each rate-cut cycle exceeding 100 basis points, midcap and small-cap indices have historically rebounded sharply. Smaller firms especially tend to gain from operating leverage, contributing to enhanced margins and earnings growth. Monarch AIF anticipates that earnings will improve in Q4, with earlier suppressed PAT growth partly attributed to labor code provisions.
Trade deals with the US and EU should further bolster export-driven small caps, leading to potential earnings upgrades by FY27.
The Impact of Geopolitical Tensions
The recent escalation in Iran has complicated matters. However, historical analysis by Elara Securities shows that, over the past 25 years, the median Nifty return during Middle Eastern crises has remained flat over a week and a month, while rising 17% over a year. Significant sell-offs typically occur only during sustained energy shocks.
Analysts from Jefferies express that the current conflicts are likely to be temporary, presenting a potential opportunity for investors—urging them to view any market dips as buying chances.
A Call to Action for Investors
Returning to the core question of whether to invest during this bear market, Giri’s advice is straightforward: “It is time to put capital to work, not to time the bottom.” Acknowledging the discomfort involved, he encourages focusing on opportunities offering attractive free cash flow and high growth potential, noting that such chances are surging.
Monarch AIF also supports this viewpoint, asserting that the risk-reward ratio for bottom-up stock picking has become favorable, a scenario typically observed post-bear market phases.
In conclusion, while the indices may not accurately reflect a bear market situation, 80% of Indian stocks are indeed facing significant declines. The seasoned investors on Dalal Street are beginning to seize this moment, suggesting that now may be the time to evaluate and invest strategically as opportunities abound amid the market turbulence.