Nifty50’s 4-month decline is rare -- Does history signal a rebound for the Indian stock market?

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For Nifty episodes involving 4 or more consecutive negative months and measuring returns from the end of the full streak, the subsequent outcomes have historically been strong.

A rare occurrence for the benchmark Nifty 50 index—four consecutive months of decline—has dampened investor sentiment. However, historical trends suggest such phases have often improved the odds of stronger future returns.

Markets rarely move in a straight line, and periods of sustained decline have typically been followed by recovery, according to DSP Mutual Fund’s April edition of its Netra report.

Data shows that four straight monthly declines in the Nifty 50 are uncommon. In March, the index recorded a 11.3% loss—its worst monthly fall in six years—marking the fourth consecutive monthly drop during which it lost 15%. Such a streak of four or more months of losses has occurred only seven times historically, the fund house noted.

For Nifty episodes involving 4 or more consecutive negative months and measuring returns from the end of the full streak, the subsequent outcomes have historically been strong, the fund house said. According to its analysis, across the seven completed cases, the average return was 12.2% over three months, 22.4% over six months and 40.7% over a year; the median return was 13.9%, 17.0%, and 20.8%, respectively. 

Negative streak length (Months)	Episodes	Share of all streaks	Avg full decline	Avg 3M return	Avg 6M return	Avg 1Y return
1 month	57	54.2%	-4.2%	10.4%	13.2%	22.4%
2 months	28	26.7%	-10.8%	9.6%	10.0%	21.0%
3 months	13	12.4%	-13.2%	3.7%	10.9%	21.9%
4+ months	7	6.7%	-23.3%	12.2%	22.4%	40.7%

But a historical trend cannot be the only factor behind the rebound.

Stock market outlook

These four months of pessimism, especially seen in March due to the US-Iran war, have made Nifty 50's valuations more palatable.

Nifty is trading below its long-period average multiples of 18.9x; while it is not cheap, it has certainly fallen between its fair and average valuations, making it a prudent time to start raising weightage in equities, opined DSP MF. The fund house also dropped its conservative stance on equities.

Echoing a similar positive view on stocks, Sunny Agrawal, Head of Fundamental Research at SBI Securities, said that the recent sell-off is largely driven by liquidity concerns and global uncertainty due to ongoing geopolitical tensions. "Valuations have already become attractive, and the earnings outlook remains strong for FY27 and FY28, particularly in the mid- and small-cap space. From a valuation perspective, conditions are now favourable."

He believes the time is right to accumulate quality businesses in your portfolio. He added that once the conflict is resolved in the coming weeks and once stability returns, there could be a solid runway for a stock market rally over the next two to three years.

The US-Israeli conflict with Iran has hammered domestic equities, as the crude oil spike amid supply disruptions has resulted in mass FPI exodus, rupee weakness and uncertainty regarding earnings growth.

Commenting on the market outlook, Dr VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, said that the market has largely discounted the known bad news. If the war escalates and Brent crude remains above $110 for long, India’s growth and corporate earnings will be hit, and the market will discount that with another round of correction, he noted.

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