The Sensex is back to where it stood in early 2023. For a generation of investors who entered the market riding the post-pandemic bull run, this feels like a betrayal. It isn’t. It is, in fact, the most important lesson the market will ever teach them , and it is being offered for free.
Let me offer some context before the panic sets in.
This is not unusual. This is equity.
Between January 2008 and March 2009, the Sensex fell 60% , from 21,000 to below 8,200. Between January 2020 and March 2020, it shed 38% in under six weeks. Each time, the obituaries were written. Each time, the market recovered ,and then some. An investor who put ₹1 lakh into a Nifty 50 index fund in January 2009 (the depth of despair) would have seen it grow to roughly ₹10–11 lakh by 2024. The reward was almost entirely front-loaded into the recovery months that most retail investors missed because they had already exited.
That is the central tragedy of equity investing: the exit and the recovery almost always happen within months of each other.
Returns come in clumps. Always.
SEBI’s own data shows that roughly 45% of all equity mutual fund redemptions in 2022–23 happened in the months immediately following a market correction. Investors who redeemed and moved to fixed deposits locked in their losses ,and missed the 24% Nifty rally that followed in 2023–24. This is the “drought before the downpour” pattern, playing out with clockwork regularity.
The mathematics here is brutal. If you miss just the ten best trading days of any given decade in Indian equities, your annualised return drops by nearly half. Those ten days rarely announce themselves. They tend to arrive in the middle of a bear market, when sentiment is at its worst and most investors are already on the sidelines.
The Valuation Picture: What the Numbers Actually Say
This is where the bear market argument becomes genuinely interesting ,and where many retail investors are missing the forest for the trees.
The Nifty 50 currently trades at a trailing P/E of approximately 20x (as of April 1, 2026). Against the 10-year median of 23.4x, the current reading sits at just the 4th percentile of that historical range ,a level the data classifies as “Attractive.” To put that plainly: the market has been cheaper than this on a 10-year lookback only 4% of the time.
The all-time peak Nifty P/E was 42x in early 2021 (on a standalone basis), and the COVID-crash low was 17x in March 2020. At 20x today, we are materially closer to that generational buying opportunity than to the froth of the pandemic stimulus era. The investors fleeing now are effectively selling near the cheaper end of a historically expensive market.
The P/B ratio tells a similar story. The lowest Nifty P/B was 2.17x in March 2020; the highest was 4.88x in July 2023. Current levels have pulled back sharply from that peak, and book value is once again providing a reasonable floor.
One caveat deserves acknowledgment: since April 2021, NSE switched from standalone to consolidated earnings for Nifty P/E calculation, which affects comparability with pre-2021 historical data. Consolidated earnings tend to be lower than standalone figures, which means the current P/E may look somewhat elevated relative to older historical benchmarks on an apples-to-apples basis. This is a legitimate methodological nuance, but it does not change the directional conclusion that valuations have corrected meaningfully from their 2021–2023 extremes.
How India stacks up globally
Here is what makes the current moment particularly interesting for the long-horizon investor: Indian equities are not only cheap relative to their own history, but the competitive landscape globally is shifting in India’s favour.
The S&P 500 currently trades at a trailing P/E of approximately 27x, against a long-run historical average of ~19.7x, meaning US equities are trading roughly 37% above their historical norm. The S&P 500’s long-run median P/E since inception is 18x, with the current level of ~26x sitting well within the upper range of 21–29x historically recorded. Investors rotating out of Indian equities into US markets via global funds are, in many cases, swapping a relatively attractively priced market for one trading at a significant premium to its own history.
The MSCI Emerging Markets Index as a whole trades at a trailing P/E of approximately 17x, with a forward P/E of 13.4x as of early 2026. India, at ~20–22x on MSCI India terms, commands a premium to the EM composite , but this is not new. India has consistently traded at a premium to the EM average throughout the past three years, reflecting the market’s recognition of India’s domestic consumption story and demographic advantages. The premium has narrowed, not widened, in the current correction.
China’s Shanghai market now trades at around 16–18x, having roughly doubled from its heavily depressed 8x in 2022. The popular narrative of rotating from “expensive India” to “cheap China” deserves scrutiny. China’s re-rating has already happened. India’s correction, meanwhile, has delivered a meaningful reset in entry valuations.
The table below summarises where key markets stand today versus their own historical context:
| Market | Current Trailing P/E | Long-Run Average | Premium / (Discount) |
| Nifty 50 (India) | ~20x | ~21–23x | ~10–15% discount |
| S&P 500 (US) | ~26–27x | ~18–20x | ~35–40% premium |
| MSCI EM (Aggregate) | ~17x | ~14–16x | Slight premium |
| Shanghai (China) | ~16x | ~16–18x | Near fair value |
Sources: NSE, CEIC. Data as of March–April 2026. India P/E on consolidated TTM basis post-April 2021 methodology change.
The conclusion is that India has corrected meaningfully while the US , the default destination for anxious capital,has not. Panic-selling Indian equities to park funds in global funds or US ETFs at current American valuations is not a de-risking move. It is a valuation-agnostic one.
So what has actually changed?
Has India’s structural growth story changed? No. Is the corporate earnings cycle broken? Not by any long-term measure , Nifty 50 EPS has compounded at roughly 12–14% annually over the last decade. Has the demographic tailwind reversed? Hardly. India adds roughly 8–9 million new workforce entrants every year. The macro underpinning of the equity story, formalisation, financialisation, consumption , remains intact.
What has changed is sentiment. And sentiment, as any seasoned market participant will tell you, is not a reason to make a structural asset allocation decision.
The Liquidity Question: Where Is the Tide, and When Does It Turn?
If valuations tell you whether the market is cheap, liquidity tells you whether there is fuel to light it. And right now, the global liquidity picture is at a genuine turning point , not a distant hope, but a measurable, ongoing pivot.
The QT era is over. Quietly, the taps are reopening.
At its October 2025 meeting, the Federal Reserve formally announced an end to Quantitative Tightening , the policy of allowing its balance sheet to shrink by letting bonds mature without reinvestment. QT ended in December 2025, with only half of the pandemic-era balance sheet expansion reversed. The Fed’s balance sheet had shrunk from $8.9 trillion in 2022 to $6.5 trillion by 2025. The direction has now reversed.
More significantly, the Fed launched Reserve Management Purchases (RMPs) in December 2025, buying $40 billion in Treasury bills per month to maintain “ample reserves.” The Fed refuses to call it QE , but functionally, the balance sheet is growing again, not shrinking. There are only two directions for the balance sheet: up or down. And now it’s going up
So when does it translate to equity market sentiment?
This is the honest question, and it deserves an honest answer: there is always a lag.
Citi Wealth describes the current moment as a “liquidity inflection point” , one where shifts beneath the surface can drive market directionality, but where inflation remains a constraining factor on the pace of further rate cuts in 2026. Liquidity is improving, but it is not a green light that gets switched on overnight.
The late 2019 analogy is instructive: when the Fed last conducted similar Treasury bill purchases, it coincided with a significant rally in equities into early 2020,before the COVID shock hit. The liquidity infusion provided a tailwind, but it did not cancel underlying macro risks.
The sequencing to watch for India is this: Fed balance sheet expansion → weaker dollar → narrowing US-EM yield differential → FPI return flows to India → equity re-rating. That chain is already in motion at steps one and two. Steps three and four typically follow with a 6–12 month lag from the point the Fed pivots , which puts the meaningful FPI return window in the second half of 2026, assuming no recession shock to the US economy.
In 2025, major central banks delivered the biggest easing push in over a decade, with emerging economies cutting rates by a combined 3,085 basis points across 51 moves. The monetary environment of 2022–24 , the most aggressive global tightening cycle in four decades , is definitively behind us. The next cycle favours risk assets. The question is not if, but when and how much.
What is missing is the final ingredient: FPI conviction returning in scale. That tends to arrive not in anticipation of good news, but after good news. By the time FPI flows visibly return and headlines turn positive, a meaningful portion of the re-rating will already have occurred. The investor sitting on the sidelines waiting for confirmation will buy at higher levels than the investor who stayed invested through the drought.
History, liquidity mechanics, and valuation all point in the same direction. The uncomfortable part is that they never tell you exactly when.
The diversification conversation always arrives late
It is telling that fixed income and gold only become interesting to the retail investor after equities have fallen. In 2020, gold hit ₹55,000 per 10 grams as equity investors fled. Those who rotated into gold then missed the Nifty’s 100%+ recovery between March 2020 and October 2021. A goal-based portfolio with a pre-decided allocation,say, 70% equity, 20% debt, 10% gold, rebalanced annually, would have navigated both environments without requiring a single act of clairvoyance.
Who should be worried, and who shouldn’t
If your financial goals are 10 or more years away, a 15–20% drawdown is noise. Statistically, over any 10-year rolling period since 1990, the Nifty has delivered positive real returns. Over 15-year periods, the floor has been around 10% CAGR. The data does not support exiting.
If your goals are within three years, you perhaps should not have been holding a high-equity portfolio to begin with. That is a portfolio construction problem, not a market problem, and the time to solve it was before the correction, not during it.
A necessary reckoning
Bear markets are uncomfortable precisely because they are necessary. They separate disciplined investors from those who were essentially gambling on momentum. India’s SIP inflows have held remarkably, at ₹30,000+ crore per month through much of 2024–25, suggesting that the systematic investor base is maturing. That is encouraging.
But those who invested in thematic funds at peak valuations chasing last year’s returns, or who allocated to small- and mid-caps without understanding liquidity risk, are now learning an expensive lesson. The bear market is not the problem. The mismatch between risk taken and risk understood was the problem.
Stay invested. Stay allocated. Stay rational.
The market does not owe anyone smooth, linear returns. It offers volatile, lumpy, deeply uncomfortable returns, with the implicit promise that patience will be rewarded. Every data point from the last 35 years of Indian equity markets corroborates that promise. And for the first time in several years, the valuation entry point is actually on your side.
Switch off the daily noise. Review your goals, not your portfolio value. You need to sit through the rain if you want to see what comes after it.
