Markets down? Stay invested - History shows 23% gains follow every decline

PGIM India's latest study shows that patience and discipline - not timing - drive long-term wealth creation.

When markets turn red, investors turn restless. A 5% dip in the Nifty 500 over the past year has left many wondering — is it time to pull out or double down? According to a new investor behaviour study by PGIM India Mutual Fund, titled “Behaviour Edge: Staying the Course”, the answer is clear: market winters pave the way for spring-like recoveries.

 

The report shows that every time Indian markets have delivered a negative one-year return, they’ve been followed by strong three-year rebounds, with average forward returns of around 23%. In simple terms — short-term pain has almost always led to long-term gain. 

 

 

Winter Before Spring: The Case for Patience

 

The study compares short-term market declines to the cold, gloomy days of winter — uncomfortable but temporary. “When portfolios are in the green, confidence is high. But when returns turn negative, fear creeps in,” the report notes.

 

As of August 2025, the Nifty 500 TRI (Total Return Index) delivered a -5% return over the past year. That might sound worrying, but historical data paints a far more optimistic picture.

 

Over the last 25 years (since 1999), nearly every negative one-year period in Indian markets was followed by a positive three-year period, often with double-digit returns. The average three-year forward return after a down year was 23.4%, with a median of about 20.4%.

 

In other words, investors who held on—or better yet, added to their portfolios—during downturns ended up benefiting the most when markets bounced back. 

Source: PGIM STUDY

 

Data Speaks: Deeper Falls, Higher Future Returns

 

The PGIM India study analyzed market drawdowns — declines of varying intensity — and compared them with subsequent three-year returns. The results were striking: 

If we break it down into buckets by severity of drawdowns/time corrections and their respective 3-year forward returns

 

Source: MFI ICRA. Nifty 500 TRI is used for the analysis. Data from 30-Jun-1999 to 31-Aug-2025. Past performance is not indicative of future results

When the market dropped 0% to -5%, the median 3-year forward return was about 19.5%.  

For deeper corrections between -15% and -25%, the median return climbed to 23–24%.

 

Even at the most severe drawdowns (around -40%), the future returns still averaged around 23–24%.

 

Crucially, the “win rate” — or the probability of positive 3-year returns following a decline — was nearly 100%.

   

Why Markets Rebound After Declines

 

So why does history seem to repeat this pattern? The report highlights four core reasons:

 

Markets Overshoot in Both Directions:

Euphoria can push prices above fair value, just as fear drags them below it. After steep drawdowns, valuations often become more attractive, making stocks ripe for recovery.

 

Earnings Catch Up Over Time:

Stock prices move up and down, but corporate earnings tend to rise steadily in the long run. As earnings grow, undervalued markets tend to correct upward.

 

Liquidity and Sentiment Cycles:

Market slowdowns often coincide with uncertainty—elections, global shocks, or interest-rate swings. Once clarity returns, liquidity flows back rapidly, fueling rallies.

 

The Behavioural Gap:

Most investors panic and exit during declines, only to re-enter late, missing the rebound. Staying invested—or even increasing exposure through SIPs—helps capture the upside.

 

Behavioural finance experts often say: “Markets reward patience, not prediction.”

The Behaviour Edge report backs that with data. It points out that trying to time the bottom rarely works. Investors who stay the course through corrections tend to outperform those who exit and re-enter later.

 

Take the example of 2020. The Nifty 500 TRI fell -4.6% in the one-year period ending September 2020 — right during the COVID crash. But over the next three years, it delivered a stellar 24% return. 

Source: MFI ICRA. Nifty 500 TRI is used for the analysis. Data from 30-Jun-1999 to 31-Aug-2025. Past performance is not indicative of future results.

 

This pattern has played out repeatedly — from the dot-com crash of 2000 and the global financial crisis of 2008 to the pandemic correction in 2020. Each downturn looked terrifying in real time but turned out to be a lucrative entry point in hindsight.

 

What Should Investors Do Now?

 

With the Nifty 500 TRI currently down 5% for the year, PGIM India’s message to investors is clear: don’t panic, stay systematic.

 

Here’s how:

 

Stick to SIPs:

Systematic Investment Plans (SIPs) shine brightest during market declines. When markets fall, your fixed monthly contribution buys more units — effectively “averaging down” your cost. When the market rebounds, this accumulation translates into higher gains.

 

Avoid Timing the Market:

Bottoms are visible only in hindsight. Trying to predict them often leads to buying high and selling low — the opposite of what builds wealth.

 

Use Corrections to Rebalance:

Periods of decline can be opportunities to increase equity exposure if your asset allocation has drifted. A financial advisor can help align your portfolio with your goals and risk tolerance.

 

Focus on Long-Term Goals:

Whether you’re investing for retirement, children’s education, or financial independence, a one-year dip is a minor event in a 10- or 15-year journey.

 

When Investors Get It Wrong

 

The report warns that behavioural biases — fear, herd mentality, and short-term thinking — often sabotage returns.

PGIM India calls this the “behavioural gap” — the difference between what a fund earns and what investors actually earn, due to poor timing decisions.

 

Historically, investor returns tend to lag fund returns by 1–2 percentage points per year simply because investors buy during rallies and sell during declines.

 

“Discipline and patience are the true differentiators in wealth creation,” the report emphasizes.

 

 The Bottom Line: Endure the Winter, Reap the Spring

 

If markets are in their “winter” phase, that’s no reason to despair — it’s often the prelude to spring. History shows that every correction has sown the seeds of the next rally.

 

So instead of asking “Should I exit?”, the smarter question for investors today is:

“Am I invested enough to benefit from the rebound ahead?”

 

Market declines are uncomfortable but essential — they reset valuations, wash out speculation, and prepare the ground for the next growth cycle.

 

Just as every winter gives way to spring, every correction makes way for a new phase of opportunity.

Investors who endure the chill are the ones who enjoy the bloom.

 

Key Takeaways:

 

Nifty 500 TRI down 5% in the past year.

 

Historical average 3-year forward return after declines: 23%.

 

Median return improves with deeper drawdowns — from 19.5% to 23.5%.

 

Win rate: Nearly 100% of past negative years followed by positive 3-year periods.

 

Best strategy: Stay invested, keep SIPs running, avoid panic-selling.