80% of stocks in bear market, but Nifty near highs: What It means for you

According to a latest report by Monarch AIF, nearly 80% of India's broader listed universe (companies above ₹1,000 crore market cap) is already in bear market territory

As of February 26, 2026, the headline indices like the Nifty are hovering near all-time highs, down only a modest 3-5%. Yet, behind that glittering curtain, the broader market is in the grip of a brutal bear market. If you own small or mid-cap stocks (SMIDs), you are likely witnessing a "time and value" correction that has been quietly accelerating since September 2024.

 

 According to a latest report from Monarch AIF, Indian markets have witnessed a phase of time and value correction in last 18 months (since Sep 2024) with a peculiar phenomenon where broader listed universe is in bear market territory while indices are staying near all-time/52w highs. The correction has been very sharp on the broader base of stocks in the small and midcap segment (SMIDs) of the market and the fall has accelerated in recent months. 

 

Monarch AIF believes that quality small caps are expected to generate superior returns hereon while large caps may remain in a range due to high valuations and lower growth. 

Smaller companies are growing faster and have consistently reduced leverage

 

The Reality Check: 80% of the Market is in a Bear Grip

 For companies with a market capitalization above ₹1,000 crore:

 

64% of companies have crashed more than 30% from their all-time highs.

 

78% of companies have fallen more than 20% (the technical definition of a bear market).

 

In contrast, the Nifty Smallcap index is down only 13%, proving that even the indices are being propped up by a "narrow band" of a few stocks while the rest of the market languishes.

 

"This kind of divergence is very rare and within each index a narrow band of stocks have been driving the index returns in last 9-12 months while broader market remains in bear grip," said the report.

 

Why this is happening

 

The last 18 months have seen:

 

• Valuation correction in small and midcaps
• Profit booking after a strong rally in 2022–24
• Narrow leadership in large-cap index heavyweights
• Slower growth in select large companies

 

But while prices have corrected sharply, fundamentals in many smaller companies haven’t deteriorated — and in some cases, have improved.

 

"Since the broad markets have corrected sharply, the total number of quality stocks available at fair to attractive valuations has materially expanded in the last 15 months. The analysis by Monarch AIF shows that currently 36% of all stocks above the Rs 1000cr m-cap are trading at TTM P/E of below 25x (vs 25% in Sep 2024). This has made risk reward favourable for bottoms-up stock picking like it generally happens after any bear market. Monarch AIF believes that broader markets have been in bear territory for past few months and good opportunities are now emerging as several small yet fast growing companies are now available at 1Y forward P/E of less than 20x," said the report. 

 

Are Opportunities Emerging?

 

Monarch AIF argues that this broad-based correction is now creating favourable risk-reward conditions — especially for quality small caps.

 

Key observations:

 

• 36% of stocks above ₹1,000 crore market cap now trade below 25x trailing P/E (vs 25% in Sep 2024)
• Several fast-growing small companies are available below 20x forward P/E
• Balance sheets of smaller firms have strengthened significantly

 

This means valuations have cooled while earnings growth remains intact in many cases.

 

The Case for Smaller Companies

 

Monarch highlights several structural positives:

 

 Strong Earnings Growth

 

• Between 2019 and 2025:
• Profit before tax (PBT) CAGR: 20%
• PAT CAGR: 25%

 

Revenue growth in the bottom half of companies:

 

• 14% CAGR vs 11% for larger peers
• Smaller companies are growing faster.

 

Lower Leverage

• Net debt-to-equity for smaller companies has fallen to just 0.13x.
• That’s a major improvement compared to past cycles and suggests healthier balance sheets.

 

 Rate Cut Tailwinds

 

• Historically, when rate cuts exceed 100 basis points:
• Midcaps and smallcaps tend to outperform
• Operating leverage improves
• Margins expand

 

If the interest rate cycle turns favourable, smaller companies could benefit disproportionately.

 

Reform Momentum

 

Recent income tax cuts and GST changes are expected to support:

 

• Household balance sheets
• Consumption
• Organised sector growth

 

Monarch believes structural reforms may act as a long-term multiplier for smaller, organised players.

 

As per Monarch AIF, below are the factors that substantiate an entry into the broad markets, particularly small quality companies across wide range of sectors.

 

Smaller companies are growing faster and have consistently reduced leverage

 

 Earnings growth from the smaller companies (bottom half set) has been strong. CAGR for Profit before tax (PBT) stands at ~20% between 2019 and 2025; PAT growth stood at ~25%.

 

The Net debt/equity for smaller companies has collapsed to 0.13x as balance sheet health remains solid

 

 Revenue CAGR for last three years for the companies in bottom half stood at 14% vs 11% for those in first half

 

Earnings growth showed improvement in Q3FY25, acceleration likely in coming quarters

 

PAT growth in Q3 was impacted due to labour code provisioning. With sustenance in domestic demand and improved outlook for exports post announcements of recent trade deals with US and EU

 

Monarch AIF expects the earnings growth to show further improvement in Q4FY26 and earnings upgrades could follow through in FY27E.

 

As per Monarch AIF’s analysis, after every rate cut cycle involving more than 100bps, the midcap and small cap indices make a sharp recovery. SMIDs tend to benefit better from rate cuts and witness operating leverage benefits leading to better margins and bottom line growth.

 

Series of reforms would create multiplier effect in the long run, economic activity is improving

 

Monarch AIF expects a strong springboard for growth for organized players across sectors and structural benefits of the reforms to flow down to the economy in coming years.

 

Investor Takeaway: Quality Over Quantity

The report’s message is clear: Don't be fooled by the Nifty's all-time high. Large caps may remain range-bound due to high valuations and slower growth. The real "alpha" (superior returns) is now emerging in the broader market—specifically in quality small caps that have been unfairly beaten down.

 

If you are an investor, the next few months are about bottoms-up picking. Look for companies with strong PBT growth (averaging 20% between 2019-2025) and low debt. The bear market in the broader universe is likely in its final stages, and for those with the patience to look beyond the indices, the entry point is finally here.