Dalal Street’s Nifty, down 8% so far in October, has likely left the worst behind as investors buy quality blue chips and a few large mid-sized companies in a bid to repair damaged portfolios and to regain their pride.

The month of October turned out to be a perfect storm on the Indian stock market landscape: an overheated rally, fueled by record monthly retail inflows, extreme optimism in primary and SME markets, eye-popping valuations and the dizzying feeling that nothing could go wrong. the long side.

“The performance of the Indian stock market over the past year has led to immense arrogance and complacency among local investors, investment bankers and policymakers,” Shankar Sharma, founder of GQuant, told Business Today. “Such market falls are a timely reminder that complacency is the greatest enemy of an economy or a market and its players.”

And what a fall it was! The 50-share benchmark Nifty has surged 21% year-to-date through September 27, making it the second-best performing major index in the world. That’s where the bears came in! The rise in US 10-year bond yields, the strength of the dollar index and above all fears of mediocre results from Indian companies in the second quarter have defeated the bulls.

The final straw was Tel Aviv’s annihilation of Hezbollah in the oil-rich Middle East, which sent crude oil prices soaring, sparking fears of conflict wider between Israel and Iran.

Foreigners were the first to abandon ship and return to American and Chinese shores.

So far, in the 19 sessions of October, foreign institutions have withdrawn Rs 105,000 crore ($12.5 billion) from stocks such as HDFC Bank, Reliance Industries, ICICI Bank, TCS, Hindustan Lever and ITC, to name a few. The Midcap and Small Cap indices lost 10 percent each. Many other major indexes have fallen 15% to 21% over the past three months as investors calculate valuation versus risk-reward.

AND NOW ?

The possibility of stocks correcting further in a market that has posted consecutive gains for eight straight years and hasn’t seen a 10 percent correction in 18 months remains on the table.

But what is also undeniable is the strength of domestic institutions, which have matched every dollar sold by the FIIs with an equal, if not greater, purchase. Slowly but surely, the domestic retail audience now owns a bigger slice of the Indian corporate stock pie! Whether this will work to our advantage in the long run, only time will tell!

The second quarter results disappointed equity strategists, but the fact remains that much of the frothy valuations in sectors such as defence, railways and PSUs have returned to mid-range averages, all like stock prices.

If you believe in the long-term outperformance of Indian stocks and have a reasonable expectation that stocks will correct, this could be a good time to invest this SIP in a good diversified equity fund and buy the market down or down. decrease on average on your previous purchases.

You could also consider adding a flexi-cap fund with a higher weighting to large-cap blue chips; a balanced fund to take advantage of a possible rate cut by the Reserve Bank of India or buy an ETF based on Nifty to reflect the movement of the index.

As for Dubai-based Sharma, one of the market’s savviest stock pickers, he continues to favor quality small caps over well-researched stocks.

“The return on Indian stocks is now very average after taking into account the increase in capital gains taxes. At that point we all woke up and smelled coffee or something,” he said.