Diwali blues: 83 largecap stocks plunge up to 60% since Samvat 2082. Can bluechips light up D-Street in the new year?

ETMarkets.com

Escalating geopolitical tensions, elevated crude oil prices, rising global bond yields, a stronger US dollar and sustained foreign institutional investor (FII) outflows weighed on market sentiment. Consequently, the Nifty 50 fell 10.3% in the year to October 23, 2026. The weakness was not limited to frontline stocks. The Nifty 500 slipped 7.8%, while the Nifty Midcap 100 and Nifty Smallcap 250 declined 4.5% and 3.7%, respectively.

The damage at the individual-stock level was particularly pronounced. Since last Diwali, 83 largecap stocks have declined, with losses of up to nearly 60%. The list includes Swiggy, Tata Motors, HDFC Bank, Infosys, ITC, Vedanta, Tata Consumer Products and Jio Financial Services, among others.

The winners, meanwhile, have been considerably fewer. Just 43 largecap stocks managed to post gains, with BHEL, Hitachi Energy, SAMIL, Titan, Shriram Finance, Hindalco and Adani Power among the top performers. Their gains extended to as much as 70%.

Against this backdrop, the key question for investors is whether largecaps can regain their footing after a bruising year.

Can largecaps spring back to life?

Market experts believe the correction has improved the risk-reward profile of several stocks, particularly those whose share prices have fallen more sharply than their underlying business outlook warrants. Valuations have also become more reasonable. The Nifty is currently trading at 16.4 times its one-year forward earnings, below its long-term average multiple of 18.4 times.

However, continued foreign capital outflows remain a significant overhang. Some of India's largest companies are facing sustained selling by overseas investors, reflecting growing concerns about the growth prospects of the country's bluechip stocks.

The September quarter highlighted the extent of this retreat. At least 53 companies with a market capitalisation of Rs 1 lakh crore or more reported a decline in FII ownership.

HDFC Bank recorded a 2.43-percentage-point decline in FII ownership, while its shares have fallen 30% this year. ITC saw foreign shareholding drop by 1.01 percentage points, while Mahindra & Mahindra reported a decline of 1.55 percentage points.

Reliance Industries, India's largest company by market capitalisation, witnessed a 0.52-percentage-point decline in FII ownership, with its stock falling 24.2% year-to-date. Tata Consultancy Services, Bharti Airtel, Maruti Suzuki India, Hindustan Unilever and HDFC Life Insurance were among the other companies with market capitalisations above Rs 1 lakh crore that saw declines in both foreign ownership and share prices.

Can valuations suffice?

The argument in favour of largecaps is not based solely on their relative attractiveness after the correction. Several market strategists believe the segment has already undergone a meaningful valuation reset, making the risk-reward proposition more favourable.

“Largecap valuations have moderated significantly after nearly two years of relatively flat market performance, improving their risk-reward profile,” said Ashutosh Tiwari, managing director and chief investment officer for public equities at Equirus Asset Management.

He believes largecaps are likely to be the biggest beneficiaries of any revival in FII flows, given their higher foreign ownership and superior liquidity. Equirus currently favours largecaps, followed by smallcaps, while considering midcaps relatively less attractive.

Persistent FII selling has continued to weigh on market sentiment despite resilient macroeconomic fundamentals, improving corporate earnings, strong domestic liquidity and a correction in valuations from their 2024 peaks. Sustained selling in sectors dominated by largecaps has also contributed to the segment's underperformance relative to smallcaps and midcaps over the past two years.

However, the valuation gap has shifted. Largecap valuations are now 18% below their historical averages, compared with midcaps, which are trading at an 8% discount to their historical averages.

Motilal Oswal expects corporate earnings to grow at a compound annual rate of 15% between FY26 and FY28. While the brokerage does not anticipate a sharp and sustained recovery in FII inflows in the near term, it believes earnings growth, macroeconomic resilience and lower valuations have improved the risk-reward profile of Indian equities.

Kotak Institutional Equities believes the combination of high and rising crude oil prices, the Iran-US conflict and associated macroeconomic risks may have “punctured the euphoria” in the small and midcap segments. This, in turn, has made investors more inclined towards largecaps, where valuations have become more reasonable.

Based on companies that had announced their results, Nifty 50 companies reported a 19% year-on-year increase in net profit in Q2, beating Kotak's estimates by 1.7%. EBITDA grew 13% year-on-year, coming in 0.7% ahead of expectations.

Kotak expects Nifty earnings to grow 18% in FY2027 and 13% in FY2028. The Nifty Midcap 150 is expected to deliver stronger earnings growth over FY2028-29. However, this faster growth has not been sufficient to offset the impact of elevated valuations and weakening risk appetite.

Outlook for Samvat 2083

Indian equities will enter Samvat 2083 after a sharp correction and a prolonged period of heightened volatility. While such phases can create attractive entry points, the external environment remains uncertain, and markets may take time to regain investor confidence, domestic brokerage Axis Direct said.

Domestic economic activity continues to draw support from consumption, services, infrastructure investment, credit availability and the gradual broadening of private-sector capital expenditure.

In its October 2026 policy review, the Reserve Bank of India raised its FY27 real GDP growth projection to 7.1%, reflecting the resilience of domestic economic activity despite external headwinds.

However, risks remain. Elevated energy prices and a weaker monsoon could put pressure on inflation, rural demand and corporate margins. How effectively the economy balances resilient domestic growth against imported cost pressures will be an important factor shaping market performance through Samvat 2083.

The coming Samvat is likely to be shaped by the interplay of global inflation, crude oil prices, monetary policy decisions, foreign capital flows and domestic earnings performance.

These factors could keep markets volatile, making a sustained, straight-line recovery unlikely. At the same time, market fluctuations can create opportunities for investors willing to focus on business fundamentals and take a medium-term view.

Returns between Diwali 2026 and Diwali 2027 are likely to depend increasingly on identifying the right businesses at sensible valuations, tracking earnings delivery and avoiding excessive concentration in expensive or speculative ideas.