Market And Economy

Have investors dropped the ball? Not yet.

DSP

Apr 21, 2025 3 mins

Summary

Despite a 16% drop in the Nifty from its 2024 peak, investors haven’t capitulated yet, evidenced by the absence of a 5% one - day fall. Historically, such sharp drops signal panic-selling and create buying opportunities. Patient investors may benefit if emotional selling sets in during this ongoing correction.

From an all-time high of 26,277 in September 2024, the Nifty had fallen close to 16% by March 2025. But despite all the carnage on Dalal Street, it appears that investors haven’t yet reached a point of real capitulation, where they actually throw in the towel and start selling in droves.

One sign of this (among several others, such as market breadth) is the fact that the Nifty still hasn’t registered a one-day price fall of 5%.

You see, during large corrections in the past (including the market declines caused by Covid and the GFC), there were occasions when the daily price did fall by at least 5%, as can be seen below.

Source: NSE, DSP. Data As of Mar 2025. Nifty Price return Index is considered.

A one-day price-down move of at least 5% seems to indicate selling pressure that has reached such an intensity that it causes investors to panic and sell.

This kind of emotionally-charged selling is what creates bargains. In other words, bargains are an outcome of capitulation.

Moreover, bargains are also an initial condition for above-average returns: patient investors who enter the market during gloomy times can make extraordinary returns.

So, will we see a 5% one-day decline during the ongoing correction?

Naturally, there’s no way to predict this. In fact, it’s not even clear whether we actually are in a cycle comparable to the major ones shown in the chart above!

What is certain is that if and when there is an emotional response from investors at large, in other words, a panic-selling spree, then that would signal an opportunity for investors who’re willing to be patient.

For more actionable insights backed by data and analyses, we invite you to read the latest edition of Netra in its entirety.

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