Nifty 500’s hidden bear market: Half the stocks are down over 30% from highs

India’s market correction is running far deeper than the headline Nifty decline suggests, with half of the Nifty 500 universe now more than 30% below its all-time high. Market data shows that 252 of the top 500 stocks, or 50.4%, have fallen at least 30% from their peaks.

The damage is even more severe at the lower end where 167 stocks, or 33.4%, are down more than 40%, while 102 stocks, which is one in five, have lost over half their value from their all-time highs. Nearly nine in 10 Nifty 500 stocks are at least 10% below their peaks, while 69.4% have declined more than 20%.

The data shows the correction is not limited to a narrow pocket of the market. While 449 Nifty 500 stocks, or 89.8%, are more than 10% below their all-time highs, 347 stocks, or 69.4%, have fallen more than 20%.


Tushar Badjate, director of Badjate Stock & Shares, said the deterioration in breadth was a necessary condition for a market bottom. “Real capitulation usually shows up as forced, indiscriminate selling: a spike in volatility, heavy volumes and a sharp reversal. We haven't seen that yet,” Badjate said.

“India VIX is still low, leverage in the system, including margin-funded positions, is near record levels, and index futures open interest has been rising along with short positions. That looks more like a grinding, macro-driven decline than a washout,” he said.

Badjate said a relief rally remained possible, but a durable rebound would require external pressures to ease.

“Until foreign selling slows, we would treat rallies as opportunities to reduce risk, not as confirmation of a bottom,” he said.

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Largecaps are not immune

The depth of the drawdown is often associated with mid- and small-cap stocks, many of which rallied sharply during the post-Covid bull market. But analysts said the correction has also reached largecaps.

“The damage is broad but not uniform, and it isn't just a small-cap story,” Badjate said.

“Many mid- and small-caps topped out in 2024 and have gone through long, stock-specific corrections, so the deep drawdowns say more about valuation resets and earnings misses than about this year's market move,” he said.

Largecaps, meanwhile, face a different set of pressures.

“Foreign investors own a large share of them, so rising US yields, the weak rupee and FPI outflows land there first,” Badjate said. “That means large-caps are exposed if foreign selling continues, while mid- and small-caps depend on stock-specific stories and on domestic flows holding up.”

Sunny Agrawal, deputy vice president—fundamental research at SBI Securities, said the market had moved away from a broad-based, top-down rally towards stock-specific performance.

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“During the consolidation of the last two years, we have seen that leaders of the earlier bull run witnessed sharp correction which is due to multiple factors like profit booking, mean reversion in terms of valuations, slowdown in earnings, sector rotation etc.,” Agrawal said.

He cited railway and defence stocks, which saw a strong rally after Covid before undergoing sharp corrections. Capital rotated into themes including auto ancillaries, structural steel tubes and ERW pipes, precision engineering components, power and power ancillaries, he said.

“Correction is not only confined to mid/smallcaps and has also affected large caps where there is slowdown in earnings growth,” Agrawal said.

“In short, the street has rotated from the Top Down approach to Bottom Up stock specific approach leading to outperformance of the select handful names,” he said.

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One in five stocks down more than 50%

The most striking feature of the data is the extent of the deep drawdowns. While half of the Nifty 500 is down more than 30% from its peak, 102 stocks—or 20.4% of the universe—are down more than 50%.

That does not necessarily mean all these stocks have been hit by the same market-wide shock. Badjate said the timing of a stock’s peak and company-specific developments were important factors.

“A stock being 50% below its peak mostly reflects when it peaked and what has happened to that company since,” he said.

He added that the market was currently characterised by high dispersion, making stock selection more important than index direction.

“Dispersion is high, so stock selection matters more than index direction right now,” Badjate said.

Agrawal also expects the stock-specific approach to remain relevant.

“Going forward, the same strategy is likely to work and outperformance will be delivered across all the market cap cohorts with different % return,” he said.

Smallcaps may have a higher valuation floor

ArunaGiri N, founder, CEO and fund manager at TrustLine Holdings, said the long-term market structure may have changed because of persistent domestic flows.

“If domestic flows continue to remain a meaningful and persistent source of liquidity and eventually become a structural anchor for the market, we could be entering a phase where the aggregate valuation of the small-cap space sustains and settles at a structurally higher level than what investors have seen in previous cycles,” ArunaGiri said.

That, however, would not protect every small-cap stock from further declines.

“At the stock-specific level, there will continue to be a huge divergence between winners and losers. Valuation and prospects will continue to matter and the market will remain highly selective,” he said.

Medium-term outlook remains bullish

Mayur Patel, president and fund manager—listed equity at 360 ONE Asset, remains positive over the medium term.

“The macro and earnings environment stays robust,” Patel said. He expects small- and midcaps to continue delivering better earnings growth than largecaps.

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He identified stronger liquidity, credit growth, consumer confidence, consumer discretionary demand and private capital expenditure as potential drivers. A resolution to the West Asia conflict could also ease crude prices, he said.

Patel listed a hawkish Federal Reserve, an extended West Asia conflict and more severe-than-expected drought conditions as key risks.

The breadth data, therefore, presents a market of sharply divided outcomes. For some, the current damage is not yet evidence of a durable bottom. For others, the correction has created a wider opportunity set, provided investors focus on earnings, valuations and company-specific fundamentals rather than simply buying the market decline.

(Data inputs: Ritesh Presswala)

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