In a recent study by Edelweiss Mutual Fund, it was found that in 11 instances where the Nifty's two-year compounded annual growth rate was flat, investors saw returns between 13% and 50% over the following year in nine cases. This trend suggests a potential bullish phase for the Nifty, as historical patterns indicate significant returns for those who remain invested.
The Nifty index has experienced a 3.52% decline over the past year and has remained largely flat over the past two years. According to fund managers, the valuations of large-cap stocks, which dominate the Nifty, are currently more attractive compared to mid-cap and small-cap stocks. This presents a favorable risk-reward scenario for large-cap investments.
Neelesh Surana, Chief Investment Officer at Mirae Asset Mutual Fund, highlighted that sustained foreign institutional investor (FII) selling has made large caps particularly cheap, allowing room for price-to-earnings (PE) multiple expansion alongside double-digit earnings growth. Currently, the Nifty is trading at 18.5 times one-year estimated PE, compared to 24 times two years ago, with Price-to-Book valuations being 30-40% cheaper.
“Risk reward clearly favours large caps now.”
Neelesh Surana, Chief Investment Officer, Mirae Asset Mutual Fund
The Nifty 50 index reached a peak of 26,277 in September 2024 before dropping to 21,744 by April 2025 due to a global tariff shock. It then rebounded to a new high of 26,373 in January 2026, only to fall back to 23,500 by June 2026 amid geopolitical tensions and renewed foreign selling.
Financial advisors caution against lump sum investments at this time, suggesting that current PE levels are historically excellent entry points for long-term investors. Amit Sahita, Director at Fincode Advisory Services, advises staggering investments and adopting a 'buy on dips' strategy given the current global environment.
“Current PEs have historically proven to be excellent entry points for long-term investors. Staggering investments and using a buy on dips approach given the global environment is better.”
Amit Sahita, Director, Fincode Advisory Services
Background
The current phase of market weakness is reminiscent of the 'taper tantrum' in the US in 2013, when remarks by then-US Fed Chairman Ben Bernanke about slowing the central bank's bond-buying program led to a global equity sell-off.
Looking ahead, investors should monitor geopolitical developments and FII activity closely, as these factors will likely influence the Nifty's trajectory. The potential for a market rebound remains strong, especially if historical patterns hold true.
