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Sensex logs one of its worst starts in decades. A valuation reset next?
Summary
Indian equities are off to one of their worst starts in decades in 2026, as rising oil prices amid the West Asia conflict threaten to weigh on corporate earnings. The Sensex has fallen 11.4% between 1 January and 16 March, marking its fifth-worst start to a year in the past 47 years, according to Mint’s analysis of historical data.
Nomura recently projected that Indian equities could end the year in the red if crude oil prices remain above $100 per barrel, driven by disruptions around the Strait of Hormuz. Analysts estimate that every $10 increase in crude prices could widen the deficit by roughly $20 billion, or about 0.5% of GDP.
The brokerage also expects a potential 10-15% downside to FY27 earnings estimates for the Nifty 50 if elevated oil prices persist. Current consensus forecasts point to about 16% earnings growth in FY27, compared with 8% in FY26.
The market's weak start, however, places 2026 alongside periods of acute global stress. The only worse openings came during the pandemic-driven crash in 2020, when the index plunged nearly 30%, and the global financial crisis in 2008, when it dropped 23%. The other two instances were 1995 and 1982, when the index fell 17% and 14%, respectively.
Of these, only 2020 and 2008 pushed the market into bear territory within the first three months, triggered by a global shutdown and the collapse of Lehman Brothers, respectively.
March has historically deepened early-year declines. In four of the five worst starts since 1980, the Sensex fell by roughly 6-7% during the month. The exception was 2020, when the pandemic shock led to a steep 23% drop.
The ongoing selloff is already among the sharpest monthly declines in recent years. The Sensex has fallen about 6% so far in March 2026, making it the second-worst monthly performance in the past decade after the pandemic crash, the analysis showed.
Despite such volatility, long-term data suggests corrections are a regular feature of equity markets. FundsIndia Research’s historical data shows that over the past four decades, the Sensex has typically seen an average intra-year drawdown of about 20%, indicating that double-digit corrections are not unusual.
Roughly 80% of the years since 1980 still ended with positive returns, suggesting market tends to overlook shock-inducing events, such as tariff wars or geopolitical flare-ups, unless the disruption evolves into a full-blown systemic crisis or a global pandemic.
Narender Singh, smallcase manager and founder at Growth Investing, said recent history reinforces this pattern.
He noted that geopolitical shocks may unsettle markets in the short term but rarely derail the long-term trajectory of strong economies like India. Singh expects mid-teens earnings growth for India Inc over the next three years.
Ajit Mishra, senior vice-president for research at Religare Broking, said the recent correction largely reflects a temporary rise in global risk aversion rather than a fundamental reset in India’s equity valuation framework.
“Periods of geopolitical escalation—such as the Russia–Ukraine war or the Gulf War—have historically led to temporary increases in equity risk premiums and short-term valuation compression,” Mishra said.
“While valuation multiples may remain under pressure in the near term as investors price in macro uncertainty, a prolonged structural derating appears unlikely.”
Seshadri Sen, head of research and strategist at Emkay Global, said the risk of a further 10% fall in benchmark indices cannot be ruled out if the conflict drags on, as markets have yet to fully price in second-order risks from a global growth-inflation shock. However, he sees the correction as temporary.
“Once crude normalizes to around $70 per barrel, India’s economy and earnings should recover. From a one-year-plus perspective, such declines could present an entry opportunity,” Sen said.
While markets have typically recovered from such early declines, analysts warn that elevated crude prices and geopolitical tensions could weigh on corporate profits this time, raising the risk of a more prolonged slowdown.
Kotak Institutional Equities, however, argued that strong domestic growth drivers could limit earnings downgrades. But the brokerage cautioned that investors may need to adjust to a world of higher geopolitical risks, elevated global interest rates, and a structurally higher equity risk premium.
In such an environment, the valuation frameworks used during the era of ultra-low interest rates may no longer apply, warned experts. That could lead to valuation derating over the next one to three years, implying slower market returns even if corporate profits remain robust.
This raises the risk of a “time correction,” even if India Inc.’s earnings outlook remains broadly intact, according to Religare Broking's Mishra. In such phases, valuation multiples gradually compress while earnings growth continues, resulting in muted index returns as earnings growth catches up with prevailing valuations, he warned.
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Nomura recently projected that Indian equities could end the year in the red if crude oil prices remain above $100 per barrel, driven by disruptions around the Strait of Hormuz. Analysts estimate that every $10 increase in crude prices could widen the deficit by roughly $20 billion, or about 0.5% of GDP.
The brokerage also expects a potential 10-15% downside to FY27 earnings estimates for the Nifty 50 if elevated oil prices persist. Current consensus forecasts point to about 16% earnings growth in FY27, compared with 8% in FY26.
The market's weak start, however, places 2026 alongside periods of acute global stress. The only worse openings came during the pandemic-driven crash in 2020, when the index plunged nearly 30%, and the global financial crisis in 2008, when it dropped 23%. The other two instances were 1995 and 1982, when the index fell 17% and 14%, respectively.
Of these, only 2020 and 2008 pushed the market into bear territory within the first three months, triggered by a global shutdown and the collapse of Lehman Brothers, respectively.
March has historically deepened early-year declines. In four of the five worst starts since 1980, the Sensex fell by roughly 6-7% during the month. The exception was 2020, when the pandemic shock led to a steep 23% drop.
The ongoing selloff is already among the sharpest monthly declines in recent years. The Sensex has fallen about 6% so far in March 2026, making it the second-worst monthly performance in the past decade after the pandemic crash, the analysis showed.
Despite such volatility, long-term data suggests corrections are a regular feature of equity markets. FundsIndia Research’s historical data shows that over the past four decades, the Sensex has typically seen an average intra-year drawdown of about 20%, indicating that double-digit corrections are not unusual.
Roughly 80% of the years since 1980 still ended with positive returns, suggesting market tends to overlook shock-inducing events, such as tariff wars or geopolitical flare-ups, unless the disruption evolves into a full-blown systemic crisis or a global pandemic.
Narender Singh, smallcase manager and founder at Growth Investing, said recent history reinforces this pattern.
He noted that geopolitical shocks may unsettle markets in the short term but rarely derail the long-term trajectory of strong economies like India. Singh expects mid-teens earnings growth for India Inc over the next three years.
Ajit Mishra, senior vice-president for research at Religare Broking, said the recent correction largely reflects a temporary rise in global risk aversion rather than a fundamental reset in India’s equity valuation framework.
“Periods of geopolitical escalation—such as the Russia–Ukraine war or the Gulf War—have historically led to temporary increases in equity risk premiums and short-term valuation compression,” Mishra said.
“While valuation multiples may remain under pressure in the near term as investors price in macro uncertainty, a prolonged structural derating appears unlikely.”
Seshadri Sen, head of research and strategist at Emkay Global, said the risk of a further 10% fall in benchmark indices cannot be ruled out if the conflict drags on, as markets have yet to fully price in second-order risks from a global growth-inflation shock. However, he sees the correction as temporary.
“Once crude normalizes to around $70 per barrel, India’s economy and earnings should recover. From a one-year-plus perspective, such declines could present an entry opportunity,” Sen said.
While markets have typically recovered from such early declines, analysts warn that elevated crude prices and geopolitical tensions could weigh on corporate profits this time, raising the risk of a more prolonged slowdown.
Kotak Institutional Equities, however, argued that strong domestic growth drivers could limit earnings downgrades. But the brokerage cautioned that investors may need to adjust to a world of higher geopolitical risks, elevated global interest rates, and a structurally higher equity risk premium.
In such an environment, the valuation frameworks used during the era of ultra-low interest rates may no longer apply, warned experts. That could lead to valuation derating over the next one to three years, implying slower market returns even if corporate profits remain robust.
This raises the risk of a “time correction,” even if India Inc.’s earnings outlook remains broadly intact, according to Religare Broking's Mishra. In such phases, valuation multiples gradually compress while earnings growth continues, resulting in muted index returns as earnings growth catches up with prevailing valuations, he warned.
Catch all the Business News , Market News , Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
Download the Mint app and read premium stories
AI Description
The article discusses the significant downturn in the Indian stock market, particularly the Sensex, in early 2026. It highlights concerns about a potential structural valuation reset due to geopolitical tensions and rising oil prices.