Nifty has ended a rare four-month losing streak, a pattern that historically precedes strong recoveries. DSP data shows average one-year returns of 40.7% after similar phases. With fund managers signalling capitulation and increasing equity exposure, market indicators suggest the recent correction may have marked a bottom for Indian equities.

Nifty's rare 4-month losing streak just ended; history says a 40% rally could be next

India's equity benchmark index Nifty has just snapped one of its rarest losing streaks on record and, if history is any guide, a major rally could be brewing.

The Nifty 50 ended a four-month slide in March 2026, a decline that has occurred just seven times in the index's full monthly history, according to DSP Mutual Fund data. What happens next has historically been dramatic: across the six completed cases of four-month-plus losing streaks, the index delivered average returns of 40.7% over the following year.

The median one-year gain was more modest at 20.8%, but even that suggests substantial upside. Over three months, the average return was 12.2%, climbing to 22.4% at six months.

"Down the line, in a few quarters, this could very well turn out to be the biggest buying opportunity since Covid," Quant Mutual Fund said in its latest note, urging investors to rebalance their portfolios aggressively.

The rarity of the streak underscores how unusual the recent selloff has been. Of 105 distinct negative streaks in Nifty's history, more than half lasted just one month. Only seven episodes persisted for four months or longer. The longest was an eight-month run from September 1994 to April 1995.

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Smart money is already moving into stocks

The ongoing selloff, which saw the Nifty decline 14.8% over four months, appears to have marked a capitulation point. ICICI Prudential's Balanced Advantage Fund, the second-largest in its category with assets of Rs 71,150 crore, raised its equity allocation to 61.9% as of March 31, the highest level in nearly five years.

"Based on our valuation and sentiment indicators turning more favourable, we believe this is an appropriate time for investors to increase their allocation to equities gradually," said S Naren, ED and CIO at ICICI Prudential AMC.

The last time the fund held more equity was in June 2020 at 67.7%, just as markets emerged from the Covid-triggered selloff that preceded a massive rally.

What is the pattern here?

DSP's data reveals a clear pattern: the longer the decline, the stronger the rebound. While one-month negative streaks generated average one-year returns of 22.4%, four-month-plus episodes delivered nearly double returns of 40.7%.

The historical episodes paint a picture of opportunity. After the four-month decline that ended in January 1991, the Nifty surged 117.9% over the next year. The streak ending in August 1998 led to a 65.6% one-year gain. Even the most recent comparable episode, which ended in February 2025, produced a 13.8% annual return.

Not all rebounds were immediate. The August 1998 case saw a modest 10.4% gain at six months before accelerating to 65.6% by year-end, suggesting patience may be required.

Quant Mutual Fund said it is "seeing signs of capitulation in Indian equities," which "actually implies that the worst is behind us."

"At the bottom of the cycle, volatility climbs, investor risk appetite shrinks and short-termism prevails," the fund said. "Such a sudden shift in volatility represents shifts in market structure, which is an opportunity to capitalise rather than capitulate."

With nominal GDP growing twice as fast as China's, the fund argues that "Indian equities remain a premier global investment." It expects "a turnaround in the earnings revision cycle, backed by recent reforms, will power the next phase of the market's ascent."

The fund believes "global capital is underestimating the trade agreement between India and the US, which will be rewarded in the longer term."

Despite recent geopolitical shocks and a sharp rise in crude prices, Quant expects "coordinated action from the government and regulatory authorities will back up the RBI's stance of low policy rates for an extended period."

"Our view that the September quarter marked the bottoming out of the earnings cycle is also playing out well. A gradual improvement in corporate earnings will be realised," the fund added.

Portfolio repositioning

Quant's latest portfolio reflects this opportunistic stance, having "increased deployment from last month's heightened cash levels, capitalising on attractive valuations." The fund is tilted towards large caps with good overall liquidity, while select mid and small cap exposure has been increased.

The fund remains "underweight manufacturing companies because of uncertainty related to input costs and supply chains," but stays "constructive on energy, large infrastructure, select NBFCs, insurance, AMCs, private sector banks, hotels, pharmaceuticals, telecom and select consumption themes, including those of FMCG and food processing companies."

For investors watching Nifty, the historical playbook is clear: extended losing streaks have been rare but have consistently preceded strong recoveries. Whether the 40.7% average materialises or returns align closer to the 20.8% median, the setup suggests the worst may indeed be over.

(Disclaimer: The recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of The Economic Times.)

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