Navigating Market Swings and Sectoral Rotation: Key Insights for Investors for FY-26

The Indian equity market recently experienced a significant correction, declining 16% from its all-time high before staging a recovery last week. Historically, such downturns have been followed by strong rebounds, with markets reverting to their mean and surging to new highs over the long term.


A closer look at past trends reveals that each market recovery has been led by different sectors, highlighting the importance of sectoral rotation in driving overall market performance.

The historical performance of BSE sectoral indices reveals a clear pattern of sectoral rotation, providing valuable insights for investors to strategically position their portfolios for the upcoming financial year. Understanding the cyclicality of different sectors can help investors make informed decisions while managing risks effectively.

The below chart shows financial year-wise sectoral returns of indices.



Understanding Sectoral Trends & Rotation
During periods of heightened volatility, the Banking and FMCG sectors act as defensive anchors, absorbing market pressure and mitigating downside risks. While these sectors may deliver moderate returns during rallies, they provide resilience during corrections. Notably, the Banking sector has not posted negative returns over the past five financial years, underscoring its stability.

Looking at historical patterns, the IT sector, which was a key outperformer between 2018 and 2022, has lagged in recent years. However, its cyclical nature suggests a potential recovery, positioning it for outperformance in the coming years. Meanwhile, Oil & Gas has made it to the top-performing sector list only twice since 2010, making it less predictable in terms of sustained leadership.

Cyclical sectors such as Auto, Realty, and Metals follow distinct performance patterns. The Realty sector, for instance, tends to alternate between extreme outperformance and significant declines. Data suggests that after a strong performance phase, Realty often delivers negative returns. Similarly, the metal sector exhibits a cyclical trend, typically trading as outperforming sector for two years, followed by a phase of underperformance over the subsequent two years. Given this cyclical pattern, the metals sector could continue its previous trend, demonstrating bullish outperformance.

Past data also indicates that the IPO index performs exceptionally well during bull markets, as investor sentiment fuels enthusiasm for newly listed companies. However, IPO stocks tend to be the first to decline when markets correct, making them more vulnerable to downturns. If the broader market rally continues, we may witness IPO stocks leading the next uptrend.

Meanwhile, Midcap and Smallcap indices consistently remain in the middle ranking of 4 to 9 performing segments, generating robust long-term returns. Midcaps, in particular, have demonstrated strong growth potential while exhibiting lower drawdowns compared to more aggressive sectoral indices.

Investment Discipline: The Key to Market Success

While historical trends offer valuable insights, it is important to recognize that markets do not follow an exact script. The market operates under a set of rules - those who understand and follow these rules stand the best chance of achieving sustainable and superior returns.

As we enter into a new financial year, investors must remain agile, diversified across defensive, cyclical, and high-growth sectors, and prepared to capitalize on emerging opportunities while managing risks prudently.

Here are the rules which we can call the “Rules of the Jungle (Market)” in order to generate higher returns.

1. Markets always revert to the mean in the long run. Up moves will be followed by down moves and vice versa.

2. Markets are dynamic. There isn’t a constant. So, be prepared for change.

3. Never put all your eggs in one basket. But don’t over-diversify either. Keep a well-balanced yet concentrated portfolio.

4. Unfortunately, there isn’t a one-size-fits-all rule for diversification or concentration. Find your own sweet spot.

5. Don’t be overjoyed when markets are good. Don't be sad when markets are not going your way. Remember: This too shall pass.


Silver Breaking Out Above 1 Lakh is an Opportunity for Investors

Gold has reached an all-time high, with its futures crossing the ₹89,000 level intraday on MCX. Following gold, a significant upmove has also been witnessed in silver’s price, with futures trading above ₹1,00,000. I discussed the strong upside potential for silver at the beginning of March, and since then, the price of future contracts has risen by 6.6%.

As mentioned in the previous article, one of the major data points supporting silver’s upside potential is the Silver-to-Gold ratio. Excluding the COVID-period decline, the current ratio of 1.09% is near a 30-year low. Gold, which has moved up phenomenally, has also paved the way for silver to gain momentum, as it closely follows in the precious metals category.


Now there is yet another reason to focus on silver… It has formed a new all-time high and even crossed the psychological mark of Rs 1 Lakh. On analysing historical returns of silver after it crosses the previous high, we find that average forward returns are positive across different periods, with 12-month forward returns providing the highest average return and strike rate. The returns are tabulated below:


Note: Once an entry has already been taken, any new entry occurring during the 3-month, 6-month, or 12-month period is ignored until its completion. The MCX Ahmedabad market's Session II closing spot prices of Silver are considered for the calculation.

As per the above-mentioned calculations, investing in silver when it breaks its previous high yields average returns of 5.20% over a 3-month investment horizon. There were 8 positive instances out of 13, resulting in a strike rate of 61.54%.

Similarly, over a 6-month period, the average return is 15.11% with a strike rate of 62.50% (5/8), and over a 12-month period, the average return is 28.74% with a strike rate of 83.33% (5/6).

Comparing the returns across the three investment horizons, a longer investment period appears to be a better alternative. Based on annualized average returns, gains over a 6-month period (30.22%) are almost one and half times those of a 3-month period (20.79%), while the strike rate remains at a similar level of 61%–62%. However, when extending the investment period from 6 months to 12 months, the annualized average return (28.74%) remains slightly lower, but the strike rate improves significantly by over 20 percentage points. That said, the number of instances decreases as the investment horizon increases.

Continuing the above study for actual investment, recently an entry signal was generated for a 3-month holding period on March 17. Now let’s wait and see how silver performs going forward. I would like to reiterate some of the key factors I mentioned in my previous articles that is driving silver prices.

Silver is extensively used in electronics, solar panels, and electric vehicles (EVs). Additionally, the rapid adoption of 5G technology and the expansion of semiconductor production have further fueled silver consumption. On the supply side, constraints persist, as silver mining output has not kept pace with rising demand. The following data from the World Silver Survey 2024 highlights the increasing silver shortage in the global market in recent years:


Silver has already achieved a breakout, making it a key focus in the market. The uptrend is likely to continue, as silver still has room to rise compared to gold’s current levels. Allocating a portion of your portfolio to Silver could be a wise strategy to capitalize on potential upward momentum, demand-supply dynamics, and investor preference for safe-haven assets, besides getting a cushion during uncertain times and an inflation hedge.

Silver is likely to shine in your portfolio—but with a word of caution: it is more volatile than gold.


Batting Through the Bear Market – Lessons from India’s Champions Trophy Victory

The stock market has witnessed a rare phenomenon - declining for five consecutive months, testing the patience and resilience of investors. However, history has shown that those who adopt the right mindset and strategy during downturns emerge stronger. A similar approach was demonstrated by the Indian cricket team in their triumphant Champions Trophy 2025 campaign, where they remained unbeaten despite challenges. Investors can draw valuable lessons from India’s championship-winning mindset to navigate this bearish phase effectively.

1. Belief in Large Caps – Experience Prevails

In every aspect of life, experience holds immense value. The Indian cricket team placed its trust in seasoned players like Rohit Sharma and Virat Kohli, who delivered under pressure despite a poor run leading up to the tournament. Similarly, large-cap stocks, known for their resilience and stability, act as anchors in a bear market. These companies, backed by strong fundamentals and market leadership, help investors weather prolonged downturns.

2. All-Round Stocks for a Challenging Market

India’s triumph was driven by a team of all-rounders, allowing them to maintain a deep batting lineup and a versatile bowling attack. Likewise, investors should focus on stocks with “all-round” characteristics - companies with strong earnings, reinvestment for growth, a solid balance sheet with low leverage, and robust cash flow generation. These qualities enable businesses to sustain themselves during market downturns and capitalize on future growth opportunities.

3. Revisiting the Investment Rationale

Shreyas Iyer, India’s highest run-scorer in the tournament, refined his technique after being dropped from the team, leveraging his strengths and addressing weaknesses. Investors must take a similar approach - periodically reassessing their portfolios. If the original investment thesis remains intact, they should stay committed despite market fluctuations. However, if the fundamental reasons for investing have changed, it may be prudent to exit and reallocate capital to stronger opportunities.

4. Proper Planning & Patience

India’s success was a result of meticulous planning, including selecting the right spinners for conditions that favored turn. Similarly, investors should conduct thorough research before investing, avoid impulsive decisions based on market noise, and maintain patience. Holding cash and waiting for the right buying opportunity can be a game-changer, as stocks have now reached valuations seen five or ten years ago. Timing, as in cricket, is crucial - just as India strategically utilized Varun Chakravarthy to great effect.

5. Blocking Out Noise

Throughout the tournament, critics and rival teams doubted India’s dominance, attributing it to favorable conditions rather than skill. However, India remained focused and did not let external negativity affect their performance. Investors should adopt a similar mindset - bear markets are often accompanied by excessive pessimism and negative news. Historically, when the market is saturated with bad news, it often marks the beginning of a recovery. Staying focused on long-term fundamentals rather than short-term fears is key.

6. Controlling the Controllables

India won every match despite not winning a single toss. Instead of worrying about factors beyond their control, they focused on their efforts and execution. In investing, predicting the exact market bottom is impossible. Rather than attempting to time the market, investors should stay disciplined with their investment strategies, such as continuing systematic investment plans (SIPs). As the saying goes, “When the time is not good to collect returns, it’s time to collect units.”

Conclusion

Just as India’s Champions Trophy victory was built on experience, strategy, patience, and focus, investors must adopt a similar approach in navigating bear markets. Trusting large caps, selecting fundamentally strong stocks, reassessing investment rationales, maintaining discipline, and tuning out noise are essential to surviving and thriving in volatile times. A bear market is not just a test of financial strategy but also of mental resilience - the ones who stay the course with the right mindset will ultimately emerge victorious.