Nifty 50 drops 16% from record high: 5 key triggers for value investing

As the stock market faces turbulence, the Nifty 50 index has seen a dramatic decline of 16% from its record high of 26,277.35 on September 26, 2024. On February 28, 2025, the index closed at 22,124, marking a significant 4,153-point drop. The BSE Sensex also recorded a 15% drop from its peak, ending at 73,198. This downtrend has extended to broader market indices, with the BSE Mid-cap and Small-cap indices falling 22% and 25.5%, respectively, from their all-time highs.

Despite the ongoing market bloodbath, experts urge investors to watch out for key triggers that may signal a market bottom and present opportunities for value buying. They emphasize the importance of promoters' activity, trade volume trends, company earnings expectations, market valuations, and retail participation as essential factors to consider in navigating the current volatility.

1. Promoters' Activity: A Critical Indicator During a stock market crash, the first signs of reversal often come from promoters. While foreign institutional investors (FIIs) may continue to sell, a rise in promoters’ stake can instill confidence and signal a potential turnaround. However, in the current market downturn, there are no indications of promoters increasing their stakes, suggesting that further correction could occur, with the Nifty 50 potentially testing its support at 21,800.

2. Trade Volume Trends: Watching for a Market Reversal In a bull market, trade volume typically surges, but it tends to dwindle amid sharp selling. A rise in trade volume can indicate that the market has reached fair value. However, in the current scenario, there is no significant increase in volume, suggesting that the market is not yet showing signs of stabilization.

3. Corporate Earnings Buzz: Awaiting 4QFY25 Results Corporate earnings have been weak, with only mid-single digit growth for NSE 500 companies in Q3FY25. This has led to numerous earnings downgrades. Investors should keep an eye on the upcoming Q4FY25 earnings and the subsequent management commentary to gauge the confidence of businesses for the upcoming quarters. Analysts also point to declining credit growth, which could signal weak Q4 results for the banking sector, further pressuring the market.

4. Market Valuations: Are Stocks Overvalued? Historically, periods of market correction have followed times when the Nifty 50’s price-to-earnings (PE) ratio significantly exceeds its historical average. Investors should compare current PE ratios with historical levels to determine if the market is overpriced or offering value. While the broader market may be down, some individual stocks may still be overvalued. Focus on those with reasonable PE ratios and strong earnings potential for better value.

5. Retail Participation: A Key Sign of Market Sentiment A rise in retail participation, often driven by FOMO (Fear of Missing Out), can signal that the market is nearing a bottom. Retail participation is often reflected in active demat account openings and mutual fund SIP contributions. Investors should monitor these metrics for signs of increasing retail interest, which could indicate the beginning of a market rebound.

How to Find a Value Pick Amid Market Decline When selecting stocks after a market crash, it’s crucial to focus on a company’s fundamentals—such as earnings growth, debt levels, and competitive position. Companies with strong balance sheets and sustainable growth prospects are more likely to navigate economic pressures and provide long-term returns.

Gaurav Goel, founder of Fynocrat Technologies, advises that the Nifty 50 PE ratio is a useful indicator of market overvaluation or undervaluation. By recognizing signs of excessive retail participation and maintaining a disciplined investment strategy, investors can acquire quality stocks at reasonable prices during market downturns.

Key Takeaway

While timing the market is challenging, investors should watch for these five triggers to help identify when to buy stocks at discounted levels in a falling market. By focusing on company fundamentals, PE ratios, and retail trends, investors can make more informed decisions and avoid common pitfalls in a volatile market environment.