Extended Nifty consolidation may be setting up the next bull run: Edelweiss MF study

Synopsis

Indian stock markets have seen a flat performance recently, but historical data suggests this could be a precursor to stronger gains. A study indicates that after similar periods of stagnation, the Nifty has historically delivered robust returns over one and three-year horizons. Fund managers believe large-cap stocks, now trading at attractive valuations, offer a favorable risk-reward profile for patient investors.

Mumbai: With the Nifty delivering little by way of returns since September 2024, many investors have been looking beyond frontline equities in search of better opportunities. But history suggests that periods of prolonged stagnation in the indices have often set the base for stronger gains ahead. A study by Edelweiss Mutual Fund showed that over the past 25 years, investors who bet on the Nifty after two-year periods of flat performance mostly made stronger returns over one- and three-year periods.

In the 11 instances when the Nifty's two-year compounded annual growth rate was flat, investors earned between 13% and 50% returns over the following year in nine cases. Those who stayed invested for three years generated annualised returns of between 10% and 40% on eight of the 11 occasions, the study said.

Agencies

market cycle: Over past 25 years, a 2-year period of flat Nifty performance has often been followed by stronger one- and 3-year returns, shows a study

The Nifty has declined 3.52% over the past year remained largely flat over two years. Fund managers said valuations of large-caps, which comprise the Nifty, are cheaper than those of mid-caps and small-caps.

"Risk reward clearly favours large caps now," says Neelesh Surana, chief investment officer, Mirae Asset Mutual Fund. "Sustained FII selling has made large caps particularly cheap, and there is meaningful scope for PE multiple expansion alongside double-digit earnings growth."

The Nifty is trading at 18.5 times one-year estimated Price to Earnings (PE), against 24 times two years ago, while Price-to-Book valuations are 30-40% cheaper, he said.

The Nifty 50 peaked at 26,277 in September 2024 before falling to 21,744 by April 2025 following the global tariff shock. It then recovered to a fresh high of 26,373 in January 2026 before slipping back to 23,500 by June 2026 as the US-Israel-Iran conflict and renewed foreign selling weighed on sentiment.

The Edelweiss Mutual Fund study said the current phase of weakness invites comparison with the 'taper tantrum' in the US in 2013, when the then-US Fed Chairman Ben Bernanke's remark that the central bank might slow down its massive monthly bond-buying program sparked a sell-off across global equities.

Financial advisors however, warn against lump sum investments at this juncture. 'Current PEs have historically proven to be excellent entry points for long-term investors. Staggering investments and using a buy on dips approach given the global environment is better, " says Amit Sahita, director, Fincode Advisory Services.

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