The first three weeks of the FY26 have been rather dramatic for the stock markets. By the end of FY25, the benchmark Nifty 50 was down ~10% from its previous high level recorded in September 2024. Foreign investors were selling persistently. News flow from any quarter was not particularly encouraging. Investors’ sentiment was sagging. Market volumes had plunged over 30% from their 2024 highs. The rate of SIP discontinuation had increased materially, with March 2025 recording net negative addition to operative SIPs. Social media timelines of active market participants were filled with despondency.
FY26 started with the declaration of trade war by the US. Markets that were already reeling under pressure plunged further, with the benchmark Nifty 50 falling another 9% in the first five trading sessions of FY26. Anecdotal evidence suggests that many traders and small investors capitulated and liquidated their positions. Several others churned their portfolios to move to defensive sectors like FMCG, Pharma etc.
In a dramatic turnaround, Nifty 50 has gained over 9% from the lows of 7th April 2025, erasing all the losses YTD2025. This is perhaps the most hated market rally since 2009. The participation has been poor. In fact, several investors/traders have used the rally to raise more cash.
In my view, the market continues to be in the process of forming a strong bottom and beginning a strong rally. It is early to conclude that a firm bottom is in place and a sustainable market rally is imminent. Nonetheless, the recent market behavior provides significant evidence to conclude that (i) fall from September 2024 was beginning of a bear market cycle (see here); (ii) bottoming process has accelerated with the April first week sharp correction; and (iii) contours of the new bull market have already started to take shape.
In particular, I would like to highlight the following trends to in support of my conclusion:
· A clear leadership appears emerging, with private banks (+13% vs Nifty 50 +3% YTD2025) clearly leading the up move.
· The up move is led by large cap stocks. Small cap (-9% YTD2025) and Midcap (-5% YTD2025) lagging behind in a typical early cycle trend.
· Besides size wise category, sector wise - IT Services (21% YTD2025), Realty (-17% YTD2025), Pharma (-9% YTD2025), Auto (-4% YTD2025) – laggards are also prominent; usually a sign of market cycle transition.
· A sizable number of market participants are still not confident about the sustainability of market rally; implying fear still dominates greed.
· Implied volatility has remained low to moderate, except for a brief surge earlier this month.
· Stock prices of capital market related businesses have recovered fast, indicating that the market participants are confident about the prospects of market activity levels picking up in the short to medium term.
I would also like to take this opportunity to mention the following ancient Hindu tradition, which I find most relevant to the investment strategy of household investors.
Hindu religious traditions mandate that a grand feast must be organized by all Hindus within 3 weeks of the death of their parents, spouse or children. In this grand feast Priests, Dogs, Crows and the poor are served with delicious food. Priests and the poor are also given clothes, gold, cash and other gifts.
Also, as per the ancient Hindu traditions, all Hindus are obligated to serve priests and feed crows during waning moon fortnight (Krishna Paksha) of lunar month of Bhadrapada. It is widely believed that serving priests and feeding crows in this fortnight pleases souls of the ancestors, and redeems the person performing this ritual from the debt of ancestors. I am not competent enough to comment about the traditions of other religions and cultures, but I am sure similar traditions are practiced by the followers of other religions also.
The lesson for investors in this tradition is that "the feast" (gains from investment) will occur regardless of you. In case you want to enjoy the feast (gains), you need to survive (stay invested) till the market cycle turns; otherwise, the priests (savvy investors and traders) will savor the feast at your expense.
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