Equity market correction nears 2 years: What history tells investors and what should they do - hold, buy or exit

About 725 days have passed since the BSE Sensex touched its previous high on 26 September 2024. Nearly two years of flattish returns. Newer investors—and others cursed with short memory—are discovering that a market correction is not just limited to price erosion. At times, it is accompanied by its less dramatic, yet more unsettling cousin—a time correction. Many who expected a swift rebound, based on recent evidence, are finding that the market is not always so kind.

The discomfort is now being felt acutely. Since 2012, this is the longest stretch where the Sensex has gone without a new record high. As many as 38% of trading days in 2026 have shown negative two-year rolling return—the highest share in over a decade, finds a WhiteOak Capital MF report. As of 18 September 2026, the frontline index has fallen only 13.4% since 26 September 2024. But the time spent under drawdown is starting to pinch. ET Wealth warned about this in our December 2023 cover story, “Can you handle a time correction?” Amid the then roaring bull market, our alarm was not empty scare-mongering. It was a warning to shed complacency. The next correction might not pull its punches, we had said at the time.

We are now two years into a protracted time-led correction, with the dark clouds seemingly not moving away anytime soon. So what should investors do in these circumstances? Does the usual playbook work when markets go on a long holiday? Is history a useful guide?

What the past reveals

Let’s start by peeking into the past. This is not the first time markets have gone into deep slumber. The most recent market crash was an anomaly. After a sharp 38% cut in the index in two months ending 23 March 2020, the market rebounded within eight months.

Previous market crashes have proved stickier.

The most severe market crash in recent memory—the 2008 global financial crisis— saw the biggest ever drop. The 61% correction lasted for just over a year, and the subsequent recovery took another 20 months. Investors who put in a lump sum near the January 2008 market top saw no return for nearly three years.

Yet, this doesn’t nearly match the misery of earlier corrections. Imagine not seeing any return from your investments for five years. The 1994 crash was one such crip pling experience. This correction not only lasted longer, but the recovery was also slow and grinding. The 41% crash starting in September 1994 lasted 27 months, until December 1996. The market then huffed and puffed its way back to recovery over another 31 months, by July 1999. This marked nearly five years without a return on investment.

The prolonged lull post the 2000 technology sector bubble was another nightmare. The Sensex fell 56% over 19 months, from February 2000 to September 2001. It took another 27 months for the index to regain lost ground by January 2004. The entire fall-and recovery period lasted nearly four years.

Investors have seen lesser drawdowns in recent years

Earlier decades witnessed more frequent, more entrenched corrections.

Time spent by Sensex 20% below market peak (in%)

Why time corrections feel different

These phases didn’t just frustrate investors. They slowly drained investors’ patience and left many permanently disillusioned. A time-led correction is deceptive in nature. You may sense only mild discomfort in its initial stages. Your portfolio value may stay slightly underwater for months. Yet, you don’t feel compelled to act on it.

Eventually, however, the rot starts gnawing at your portfolio return. Even if the rupee value of your portfolio remains the same, its purchasing power reduces. Your goals seem farther away than you planned. You start seeing fixed deposits outperform your well-crafted portfolio. Beyond a point, you feel the itch to act. Some get adventurous, seeking other alternatives to bolster returns. Many simply throw in the towel.

A time correction is painful and demands a very different set of answers, observes Deepak Chhabria, CEO, Axiom Financial Services.

“In a price-driven correction, reversal happens quickly, and investors move on as the portfolio recovers. In a time-led correction, your portfolio value may not go down, but you don’t see any material appreciation even after several months of patient contributions.” According to Chhabria, investors have already felt some fatigue.

On the surface, Systematic Investment Plan (SIP) contributions have stayed resilient. Gross monthly inflows recently exceeded `32,000 crore, according to data from the Association of Mutual Funds in India (Amfi). At the same time, the industry recorded 53.82 lakh SIP closures, maturities, and discontinuations against 66.39 lakh new registrations. While the SIP stoppage ratio has eased from 100% in previous months to 81% in August 2026, it remains elevated, suggesting unease among some investors.

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What stays the same, what doesn’t

The common thread with earlier corrections is that investor expectations and valuations moved faster than sustainable earnings. The crucial difference is that India now has stronger domestic financials, unabated SIP flows and a more diversified investor base, which can convert a sudden crash into a long period of sideways returns, observes Ankur Punj, MD, Equirus Wealth.

“The ongoing correction differs materially in its domestic-liquidity cushion, lower apparent leverage, breadth of participation and the nature of the trigger: this is currently more a prolonged valuation-and-time correction than a classic balance-sheet or banking crisis,” Punj asserts.

Nilesh Shah, Managing Director and Chief Executive Officer, Kotak Mahindra Asset Management Company, observes that the genesis of the past few corrections lay in external shocks like the US subprime crisis in 2008 and the Covid crisis in 2020. This time too, markets echo a global crisis driven by oil above $100 amid West Asia tensions, tariff/trade uncertainty, and supply-chain frictions. The US 10-year yield recently breached 5%, the highest level since 2007, amid worries about fiscal strain and rising inflationary pressures.

Sankaran Naren, Executive Director and Chief Investment Officer at ICICI Prudential Asset Management Company, points out two key divergences from past corrections. Riding on huge inflows into small-cap and mid-cap mutual funds, small caps and mid caps have turned out to be more resilient than large caps.

The second is that, despite the market going sideways for the last two years, except for a few sectors, the rest of the market is still not attractively valued yet. In the long run, what matters is only valuation and fundamentals, and not inflows, Naren insists.

The market is fairly valued, not cheap. Raising equity allocation well above the long-term target is not justified just because the index has been range-bound.

-Nilesh Shah, MD & CEO, Kotak Mahindra Asset Management Company

History shows market corrections can be sticky

The 2020 market correction was an aberration; previous drawdowns have lasted 3-5 years

Large, mid-cap multiples correct

Valuations have corrected in large- and mid-caps, not small caps.

Lump-sum money struggled, SIPs did better

SIPs in mid- and small-cap funds have yielded healthy returns, but many large- and exi-cap funds suffered.

What the flat market hides

Two years of a sideways market should not be mistaken for a moribund economy. There are visible undercurrents beneath the index’s apparent inertia. The WhiteOak Capital MF report observes that nominal GDP has continued to grow through this stretch, and so have corporate revenues and profits. More broadly, prices haven’t moved, but the value underneath them has, which means valuations have quietly become more attractive, not less. “Price tends to follow value with a lag, not the other way around,” suggests the report.

Punj asserts, “Nifty’s flat two-year return is not a period of inactivity. It is a market being rebuilt underneath: valuations have moderated, earnings are beginning to recover, ownership has shifted, and leadership is being renegotiated.”

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This time, the Nifty 50 and Sensex have been the dull part of the market. The large-cap indices have not done well because of substantial selling by foreign institutional investors (FIIs) over the past two years, points out Naren. Meanwhile, small and mid-cap indices have done well because of large inflows into the buckets via mutual funds and portfolio management services (PMS).

What happens after a large-cap correction of ≥15%?

Last 21 years’ data suggests, broad sell-offs have historically favoured an initial mid/small-cap tilt

Note:

Despite the market going sideways for the last two years, except for a few sectors, the rest of the market is still not attractively valued yet.

-Sankarana Naren, Executive Director and CIO, ICICI Prudential Asset Management Company

SIP returns can recover after a rocky start

Survival or opportunity?

Investors who have been patiently contributing via SIP for the last two years may draw comfort from the past. Similar dull runs have proved very rewarding for those who stayed.

DSP Asset Managers tested every 10-year SIP in the Sensex TRI (total return index) over the last 30 years. The fund house found that 99% of times the SIP delivered returns higher than debt. The median return was 14.2%, with the lowest observed 10-year SIP return at 9.1%. But here is the part that often gets missed: 81% of those same 10-year SIPs gave negative returns at certain phases during the journey. At different points, 97% of them underperformed debt. A median SIP underperformed debt for about 16 months throughout the 10-year period.

The biggest risk is stopping the SIP and not staying invested during a drawdown. Shah maintains that rupee-cost averaging is precisely why SIPs suit a time correction. “Two negative years on the index do not invalidate a 7-10 year SIP plan,” he maintains.

When markets go nowhere for two years despite rising GDP and earnings, the gap between price and underlying value doesn’t disappear, the WhiteOak Capital MF report observes. It has to close eventually, and the market’s mean-reverting tendency means the odds of an above-average stretch tend to rise the longer the flat patch persists. Put simply: each additional year of negative or low returns increases, rather than decreases, the probability of stronger returns over the following years. “If anything, conviction should build through a stretch like this, not fade,” the report suggests.

But don’t expect the market to kick into higher gear based on past evidence alone. History shows recoveries have followed past drawdowns; it does not tell us exactly when this one ends. “Comfort from history is valid only with caveats,” reckons Shah. Healthy multi-year returns have often followed long-term corrections, but the starting valuation and the earnings trajectory matter more than the calendar. If oil stays elevated and earnings growth remains muted, the recovery can be delayed. If those two variables improve, the market can re-rate without needing a new narrative, Shah remarks. Punj adds, “A long period of weak index returns can quietly improve the forward return profile—provided investors survive the remaining uncertainty and avoid paying premium prices for yesterday’s winners.” The market may remain subdued for longer. Aequitas Research observes in its report that earnings have been catching up while valuations have been correcting, without an equally dramatic correction in index levels. “The process may not be complete. A period of time-based correction could continue even as underlying businesses continue to grow, leading to more frustration for Indian investors,” the report adds.

Given the circumstances, a calibrated stance is ideal for now. Punj says, “The right framework is to increase equity exposure only when three conditions are satisfied: the money is genuinely long-term, the investor can tolerate further drawdowns, and the additional allocation is directed towards reasonable valuations and improving earnings—not merely towards the stocks that have already fallen.”

Shah suggests investors treat this as a valuation and earnings digestion period, not a cheap-market buying opportunity. “The market is fairly valued, not cheap. Going ‘over-bought’ or raising equity allocation well above the long-term target is not justified just because the index has been range-bound.” Naren strongly believes we are in a moderate-return phase because of the major underlying themes and investments in artificial intelligence (AI) and related areas worldwide. “Until this area starts correcting, we believe asset allocation is the best way to invest for the long term,” Naren says.

Patience remains the right posture for this market, Chhabria maintains. “We feel one should remain invested, avoid reacting to short-term volatility and use any sharp correction as an opportunity to accumulate.” SIP and STP (systematic transfer plan) offer a better approach than lump-sum investments, WhiteOak Capital MF indicates. SIPs benefit from lower unit costs during a fall, and staggering lump sums via an STP avoids the risk of a single bad entry point. Lump-sum only makes sense if an investor has strong conviction on valuations and is comfortable absorbing near-term volatility to capture them.