The Indian stock market is going through one of its worst phases in nearly three decades, with the Nifty 50 slipping 15% from its September peak. This marks its longest losing streak in 29 years, causing investor wealth to shrink by more than ₹90 lakh crore. On Friday, Nifty lost over 400 points, and the Sensex plunged by 1,400 points, sending shockwaves through Dalal Street.Investors are increasingly concerned about foreign institutional investor (FII) outflows, small- and mid-cap stock declines, and high market valuations, all of which are contributing to the ongoing weakness.
 

Foreign Sell-Off and Market Pressure

A key factor behind the market downturn is the massive foreign investor sell-off. Since September 2024, foreign investors have pulled out nearly $25 billion from Indian markets, with $4.1 billion withdrawn in February 2025 alone. The uncertainty surrounding global economic conditions and U.S. trade policies has further fueled the sell-off, leaving Indian equities struggling to find stability.Mahesh Patil, CIO at Aditya Birla Sun Life Asset Management, noted that the lack of clear macro triggers and increasing global volatility have made investors cautious. While domestic institutional investors (DIIs) have tried to absorb some of the selling pressure, the net inflows into equity mutual funds have started slowing down.Kotak Institutional Equities CEO Pratik Gupta added that although local mutual funds and insurance firms continue to inject liquidity, the rate of investment has slowed compared to last year. The market sentiment remains weak as investors shift focus toward safer investment options such as large-cap stocks and hybrid debt-equity funds.
 

Small-Cap and Mid-Cap Stocks Bear the Brunt

The worst-hit segments during this market downturn are small-cap and mid-cap stocks, which have seen sharp corrections.

• The Nifty Small-Cap 100 index dropped 13.2% in February alone, marking a steep decline.
• The Nifty Mid-Cap 100 index lost 11.3% in the same period, erasing significant gains from previous months.
• From their record highs, small-cap stocks are down by 26%, while mid-cap stocks have lost 22% in value.

Many analysts believe that these corrections were inevitable due to the excessive valuations that these segments had reached over the past year. Investors who rushed into small- and mid-cap funds in late 2024 are now witnessing heavy losses as funds reallocate capital to more stable assets.Market expert Kenneth Andrade, CIO of Old Bridge Mutual Fund, warned that the current valuations of small- and mid-cap stocks remain stretched despite the correction, making them vulnerable to further downside. He also pointed out that foreign investors are increasingly turning to lower-valued Chinese and European stocks, diverting funds away from India.
 

Can the Market Recover in March?

Historically, March has been a strong month for Indian equities. Over the last 15 years, the Nifty 50 has delivered positive returns in 10 of them. Market participants are hoping that stabilization in global markets, easing of foreign selling pressure, and renewed institutional buying could trigger a reversal.Dr. VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, expects the market to recover in March 2025 if global macroeconomic trends improve. He suggested that long-term investors should take advantage of the ongoing correction by accumulating fundamentally strong large-cap stocks and selectively picking fairly valued mid-cap companies.However, caution remains high as analysts predict that volatility will persist for the next few months. With the 2025-26 financial year approaching, many investors are waiting for clarity on global trade policies, U.S. Federal Reserve interest rate decisions, and domestic economic data before making significant investments.
 

Market Uncertainty Continues

While Indian stock markets have seen their worst losing streak in decades, analysts remain divided on whether a recovery is imminent. The ongoing foreign sell-off, valuation concerns, and global economic uncertainty continue to weigh on market sentiment.For now, investors are advised to remain cautious, focus on quality large-cap stocks, and avoid chasing high-risk small- and mid-cap stocks until the market stabilizes. The coming weeks will be crucial in determining whether March can offer a rebound or if the downturn will extend further into 2025.