When markets fall: Should you worry or invest more amid volatility?

History shows that sharp falls are not unusual. Since 1980, the Indian stock market has corrected by more than 30 per cent on eight occasions

“Markets have fallen because of the West Asia war. Should I be worried? Or is this a buying opportunity?” Girish, a client, asked last week.

 

 The question sounded familiar. Investors ask it whenever markets fall. The trigger changes — a war, a financial crisis, or a pandemic. But the dilemma remains the same. Should we be worried? Or is this a buying opportunity?

 

Markets recently fell about 12 per cent from the peak reached in January 2026. Some investors worry that something unusual is happening. Others see the fall as a buying opportunity. Neither reaction is unusual. Historical data tells a simple story. Markets have risen in 38 of the 46 calendar years since 1980. Yet even in these years, markets have experienced sharp falls during the year.

 

Markets have fallen 10 per cent or more from their yearly high in 41 of the 46 calendar years since 1980. Such declines are normal. The average fall during a calendar year has been about 20 per cent. Yet despite these falls, markets have compounded wealth, with stocks roughly doubling every five years (about 15 per cent annual returns).

 

Investors know markets rise over the long term. Yet when markets fall sharply — even though such declines occur every year — that perspective is easily forgotten. These declines make investors uncomfortable. But continuing to invest during such periods is the reason long-term returns exist. When markets fall, those who stay invested and continue investing earn higher returns in the years that follow.

 

Occasionally, markets fall much more sharply. The Covid crisis is a recent example. In March 2020, markets collapsed at a speed rarely seen before. The Nifty fell 38 per cent to 7,610 by March 23, 2020, from the high of January 20, 2020. Fear was everywhere. Lockdowns spread across the world. Economic activity halted.

 

On March 19, 2020, a week before the nationwide lockdown began on March 25, this column was titled, “Move from debt to equity but gradually” (mybs.in/2YLglAN). I argued that investors should have the courage to stick to their long-term asset allocation plans rather than exit equities out of fear. For those who saw the fall as a buying opportunity, the column suggested increasing equity exposure — but systematically, not through lump-sum investments.

 

That advice felt difficult at the time. In hindsight, it appears prescient. Few could have predicted the speed of the recovery. The Nifty regained its earlier high by November 2020, within eight months. Today, six years later, it remains more than triple its value at the March 2020 lows despite Friday’s lower levels.

 

History also shows that sharp falls are not unusual. Since 1980, the Indian stock market has corrected by more than 30 per cent on eight occasions, including the Harshad Mehta scam in the early 1990s, the dot-com crash in 2000, the global financial crisis of 2008, and the Covid shock of 2020.

 

Yet markets have delivered their strongest returns in the years following major falls. The average five-year return from a bear-market low is about 26 per cent — more than tripling the investment — compared with about 15 per cent during normal periods, which merely doubles it. Investors who remained disciplined during such periods were rewarded.

 

Some investors try to avoid losses by exiting markets during crises and returning later. In practice, this is very hard to do. Markets normally recover before investors regain confidence. Missing just a few of the market’s best days significantly reduces long-term returns. These days occur soon after the worst days.

 

Truth be told, the right approach is simple, though not easy. Decide your equity allocation from a sensible financial plan based on your goals and risk profile, and stick to it when markets turn uncomfortable. That is what I told Girish. It was also my advice in March 2020, just before the Covid lockdown. If it made sense in the far greater uncertainty of that period — when the risk was not just to markets but to our lives — it certainly applies today. Do not get trapped in the fear-and-greed cycle. Let time and discipline do the heavy lifting.

 

The writer heads Fee-Only Investment Advisors LLP, a Sebi-registered investment advisor; X: @harshroongta