Forget multibaggers, Sensex & Nifty fail to beat even bank FD returns in 1 year. What's wrong?

India’s stock market, once the hottest ticket for retail investors chasing multibagger stocks, is now lagging behind the humble bank fixed deposit. Over the past year, the Sensex and Nifty have delivered flat returns, turning the excitement of millions of investors into frustration as equity bets that looked like wealth machines in 2023–24 have suddenly stopped working.

While mutual fund SIP-led domestic inflows aren't allowing the market to fall down, FIIs and promoters are balancing it out with a deluge of supply. The result: a market stuck in a time correction phase, unable to rise or fall decisively.

While the Nifty has managed to crawl up a measly 145 points in the last one year, the Nifty Midcap index has shed 1.5% of its value. Smallcaps, retail investors' favorite playground, have plunged 6%. The Nifty Next 50 has been even more brutal, erasing 9% of investor wealth.


The bloodbath in PSU stocks paints the starkest picture of changing market dynamics. As the government shifts focus from capital expenditure to consumption boosting, the PSU index has crashed over 16%.

“If you look at last year, valuation peaked around September-end and with corporate earnings growth moderating to mid-single digits it is no surprise that equity indices have hardly delivered any returns over the past year. Even today, I think most major sectors are at or near full valuations,” Krishnan V R, Chief of Quantitative Research, Marcellus Investment Managers, told ET Markets.

Pointing out that near term earning growth triggers in consumption linked sectors, which benefit from announced rate and tax cuts, is probably offset by moderating government capex and tariff headwinds in exports for the broader market, he said private capex is yet to pick-up and nowhere near the 2004-12 investment cycle.

Unlike bank FDs, stock market returns don’t follow predictable and straight line patterns, but are known to revert to mean on both sides.

“A phase of above average returns will be followed by below average returns and this goes on, at various degrees depending on the economic growth, interest rates and other macro factors, decide the intensity of such mean reverting oscillation,” Umesh Kumar Mehta, CIO, SAMCO Mutual Fund, said.

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Investors, therefore, have to focus on goals, investment horizon and strategy for long-term wealth creation. “If this is done right, then the performance of near or medium term will not matter,” he said, while assuring investors that since India has great long-term potential compared to the rest of the world economies, above average equities return will be made in the long run.

Historically, long-term returns of equity as an asset class are much superior to not just bank FDs but all other investments only if you can digest short-term volatility as part and parcel of equity as an asset class.

After one year of time consolidation, the stock market which peaked out in late September last year, is neither cheap nor expensive.

UTI AMC's Amit Kumar Premchandani said valuations are now in the fair value zone for largecaps while small and midcaps remain expensive.

The mutual fund's internal model for asset allocation is suggesting around 65-70% asset allocation to equity which has moved up by 5% over the last few months.

"Stocks which were riding on narratives are relatively more at risk than those which are backed by solid underlying growth. Also, we need to consider the macro shock in terms of sharp increase in US tariffs on goods and its impact on global growth as well as impact on India given, we have been subjected to one of the highest tariffs," he said.

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Domestic brokerage firm Emkay Global said it is positive on Indian stocks from a 2-3 quarter perspective and see GST rationalization as a key catalyst, rendering the tariff outcome largely moot.

"The earnings cycle is bottoming out and strong fiscal and monetary stimuli should catalyze a consumption-led macro recovery in 2HFY26. Elevated multiples are not a major worry unless earnings surprise us on the downside from here – which we see as unlikely. Domestic flows remain robust and there are no signs of weakening – this offsets the FPI and promoter selling to a large degree. There may be some choppiness in the short term until earnings visibility emerges: we see any significant correction as an entry opportunity," it said.

The long consolidation phase may also set the stage for a rally if earnings growth starts picking up pace from Q3 onwards.

Equirus Securities said largecaps provide the best margin of safety, midcaps should be approached selectively in structural growth areas, and smallcaps warrant caution until earnings catch up. "Near term, leadership is likely to shift toward largecaps and quality midcaps as valuations and earnings expectations re-align," it said.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)