The stock market is continuously falling. Especially in 2026, the stock market has troubled investors a lot. Now we are all about to step into the last three months of the year. There are fears that this decline in the stock market may further increase. If this happens, the Nifty will stand at its biggest decline in the last 15 years. The last fall in Nifty was 24.6 percent in 2011. We are talking about the stock market which was one of the top 5 largest markets in the world not long ago. Even global shocks could not touch this stock market. Now the biggest question is what happened in the year 2026 that caused the Indian stock market to fall sharply. A decline that seems to be breaking the record of 2011. Let’s try to understand this in statistical terms…

How much has Nifty fallen so far?

Talking about statistics, the main index of National Stock Exchange has fallen by more than 13 percent. However, Nifty suffered the most in the first quarter of the calendar year. While the Nifty fell by 15 percent from January to March. After that, investors got some hope as in the second quarter i.e. from April to June, the Nifty saw a recovery of over 7 percent. But the euphoria was short-lived and the Nifty fell more than 5 percent between July and September. If we talk about September, Nifty has fallen by 5 percent in this month itself. This vulnerability extends beyond this year. Since the end of September 2024, the Nifty has lost over 12 percent. There has been relief in some parts of the broader market. The Nifty Midcap and Smallcap indices have been rising so far this year.

Entry of AI and exit of foreign investors

1. Expensive initial valuations, massive pullbacks by foreign investors, geopolitical shocks, rising oil prices and worries about earnings growth – all are slowly reducing the premium investors are willing to pay for Indian equities.
2. Foreign exchange is the biggest reason. Foreign portfolio investors (FPIs) sold a record $24.6 billion in Indian equities from 2026 to August, even as they returned as buyers in August.
3. Much of that money went to AI-dominant markets like Taiwan and South Korea, where semiconductor and technology stocks outperformed.
4. Analysts say the market was one of the biggest global equity trades last year due to the limited presence of companies that can directly benefit from AI in India.
5. Sales resumed in September. FPIs in the first half of the month from Indian equities at Rs. 13,138 crore was withdrawn. The biggest reason was crude oil prices, due to which bond yields and the dollar index rose. By then total foreign sales for 2026 will be Rs. 2.37 lakh crore was reached.
6. Motilal Oswal shows the extent of this change more clearly. He estimates that foreign investors have withdrawn about $56 billion in the last 24 months, which almost exceeds the total FII investment in the last eight years.
7. Local institutions have filled this gap to a large extent. During this period, he invested a record $177 billion, including mutual fund SIPs of Rs. An investment of over 30,000 crores was involved. Had this local money not been forthcoming, the market decline could have been more severe.

Geopolitical tensions and crude oil prices

Another blow came from geopolitics. The conflict in the Middle East caused crude oil prices to rise sharply earlier this year. This was a difficult situation for an economy that imports most of its oil needs.

Rising crude oil prices posed a threat to inflation, current account and corporate profits, and also pressured the rupee and bond yields. During the sell-off in March, the Nifty fell nearly 7 percent in a single month due to disruptions in energy supplies due to the conflict.

Even in September, Brent crude remained around $100 per barrel, while the rupee was trading at 95-96 against the dollar. Rising oil prices have reignited concerns about inflation and interest rates, while investors were expecting a better improvement in corporate earnings.

India’s IT sector has also put pressure on the market. Technology stocks were among the hardest hit earlier this year as investors worried that generative AI could put pressure on prices and traditional outsourcing models and that US clients were wary of spending. The Nifty IT index has fallen more than 21 percent so far this year, according to a Reuters report.

A little relief from assessment

However, this decline has eroded a large portion of India’s valuation premium. The Nifty is now trading at around 20.9 times its earnings, which is lower than its five-year average (23.5 times) and 10-year average (23 times). On a forward basis, the multiple has fallen to around 18.5x, compared to 31.1x for the Nasdaq and around 21-22x for the S&P 500, Dow, Japan and Taiwan. Softness is also seen in mid-caps. The P/E of the Nifty Midcap 150 has fallen to 31.1 times from 45.8 two years ago, while the P/E of the Smallcap 250 is 31.7 times.

Will Nifty’s trend change?

Motilal Oswal believes that affordable valuations, improving incomes, strong domestic investment and economic growth have improved the market’s risk-reward. Nifty companies’ profit growth averaged 18 per cent in the June quarter, the fastest pace in the last 10 quarters. Brokerages reported more earnings upgrades (upgrades) than downgrades (downgrades), which could lead to a better earnings position.

Jefferies also finds that foreign investor sentiment is slowly improving despite the fact that most FPIs are underweight in India. Brokerages find large-cap financials, particularly BFSI, very attractive, while investor interest is shifting to power, infrastructure, new-age manufacturing and consumer internet companies. Oil prices, inflation and interest rates are still important factors.

Kotak Equities’ view is more cautious. His argument is that global equity valuations are at a high level, so there is little room for disappointment if oil prices or bond yields rise again. These are risks that can quickly outweigh earnings improvements. Hence, the market is entering the last three months of 2026 on the back of good earnings and domestic liquidity, but foreign investors are yet to fully return, oil risks remain and the rupee is under pressure. is in