Should I stop my SIP?

On March 3, 2025, the Nifty 50 closed at 22,119.30—a level quite similar to where it was around the same time in 2024. Last year, on March 2, 2024, it had closed at 22,378.40, marking a modest decline of 259 points (1.17%) over a year.

At first glance, this doesn’t seem like a big deal. If an investor who doesn’t track markets regularly were to compare last year’s levels with today’s, they probably wouldn’t feel any panic. After all, equity investing is for the long term, and short-term fluctuations are part of the journey.

Then why are investors worried?

The concern arises because, in between, the markets hit an all-time high of 26,277.35 in September 2024 before correcting sharply to current levels. That’s a 16% drawdown from the peak, and for many investors—especially those who entered the markets post-pandemic—this is their first significant correction.

As a result, many are now questioning their investments:

• “Should I stop my SIPs?”
• “Should I redeem my investments?”

These are valid concerns, but before making any decisions, let’s analyze the situation from both technical and behavioral finance perspectives to find the right approach.

What’s driving the market correction?

Before deciding what to do next, it’s important to understand why the market is correcting. Here are some key factors:

1. A Strong Bull Run and Premium Valuations – Indian markets have been on a remarkable upward trajectory since the COVID-19 crash, with minimal corrections along the way. After such an extended bull run, a market correction is a natural phenomenon—a way for valuations to stabilize. Many analysts had already pointed out that valuations, particularly in the small- and mid-cap segments, had become stretched. At elevated levels, any negative trigger can lead to a sharp correction, and that’s exactly what we’re witnessing now.

However, if we look at where valuations currently stand, we can see that normalization is taking place. The Nifty 50’s Price-to-Earnings (P/E) ratio is around 19.67, which is below its long-term average of 23.08.

And, this is not just limited to large-cap stocks—indices like Nifty Small Cap 250, Nifty Mid Cap 150, and Nifty 500 are all trading below their historical P/E averages.

This suggests that markets are undergoing a healthy correction, bringing valuations back to more reasonable levels.

2. FIIs Selling – One of the biggest factors driving the current market correction is heavy selling by Foreign Institutional Investors (FIIs).

• Since October 2024, after the market hit an all-time high in September 2024, FIIs have sold ₹3,23,765.23 crore in the cash market.
• If we extend the data from April 2024 to February 2025, the total net FII outflows amount to a massive ₹4,01,953.87 crore.

Note – Data for the period from April-24 to Feb-25 Source – Moneycontrol.com

While Domestic Institutional Investors (DIIs) have stepped in to absorb some of this selling, their buying hasn’t been enough to fully offset the outflows. As a result, this persistent FII selling pressure has contributed significantly to the market’s downturn.

3. Rupee Depreciation – The Indian Rupee (INR) has been on a downward trajectory against the US Dollar (USD), adding to market concerns. Since the beginning of the year, the INR has depreciated by 4.85%.

However, this isn’t an isolated trend—most emerging market currencies have weakened against the USD due to global economic factors. Despite this, the Reserve Bank of India (RBI) has actively intervened in the open market to prevent excessive volatility, helping to stabilize the rupee to some extent. While currency fluctuations alone don’t dictate market movements, a weaker rupee can lead to higher import costs, increased inflationary pressures, and reduced foreign investor confidence, all of which contribute to the ongoing correction.

4. Global Factors – Global uncertainties have been a major source of market jitters, amplifying volatility and investor anxiety.

• US Tariff Policies – Concerns around potential changes in US tariff policies have raised fears of an escalating trade war, which could disrupt global supply chains and impact emerging markets like India.
• Geopolitical Tensions – Ongoing geopolitical conflicts and uncertainties have further added to market instability, affecting investor sentiment worldwide.
• Economic Slowdown in Major Economies – Rising inflation and slowing economic growth in key regions like Europe, the UK, and Australia are also weighing on global markets. Persistent inflationary pressures and concerns over recessionary trends in these economies are making investors more cautious.

With global markets facing multiple headwinds, investors are becoming more risk-averse, leading to increased market corrections and cautious investment behaviour.

5. Domestic Factors – While global challenges are impacting markets, domestic economic concerns have also contributed to the correction. The Indian economy has shown signs of slowing growth, adding to investor worries. Additionally, inflation remains stubbornly high, affecting both purchasing power and corporate profitability. This has further dampened market sentiment, making investors hesitant to deploy fresh capital, ultimately contributing to the ongoing market correction.

Where will the market go?

No one can predict market movements with certainty. However, what we do know is that India’s growth story remains intact. If we look at the factors that contributed to the correction, many have either reversed or corrective steps have already been taken. Valuations are normalizing, and economic growth is back on track, as reflected in the latest Q3 FY25 GDP growth rate of 6.2%. The government has introduced tax concessions in the budget, increasing disposable income for consumers. The RBI has reduced policy rates, conducted open market operations (OMO), and lowered risk weights for financing to improve liquidity in the economy. Essentially, all necessary domestic measures have been implemented, and no major macroeconomic concerns are weighing on the economy.

The remaining uncertainty lies in external factors. Once geopolitical conditions stabilize and global economies show signs of recovery, market sentiment is expected to improve.

What should a retail investor do?

Now, let’s address the key question: Should you stop your SIPs? Should you redeem your investments?

In cricket, there’s a saying: “Form is temporary, class is permanent.” The same applies to markets. Right now, the Indian market is going through a rough phase, but that doesn’t mean it has lost its strength. A shift in sentiment can lead to recovery, and history has shown that markets tend to bounce back over time.

That said, asset allocation and diversification remain critical. Overexposure to any single asset class increases risk, so investors should maintain a balanced portfolio. The key is to review your portfolio at regular intervals (but not too frequently), rebalance when necessary, and ensure your asset allocation aligns with your risk appetite.

If you have ongoing SIPs, consider the following:

• Is the investment aligned with your risk appetite?
• Has the fund demonstrated consistent performance over the long term?

If both these factors check out, there’s no reason to stop your SIPs. In fact, market corrections help average out the cost of investing, making them beneficial for long-term wealth creation. However, if your investment no longer aligns with your financial goals or risk tolerance, it may be worth reviewing your fund choices and making necessary adjustments.

For any queries, feel free to reach out to us at research@edufund.in.

Disclaimer: The data in this presentation are meant for general reading purposes only and are not meant to serve as a professional guide/investment advice for the readers. This presentation has been prepared on the basis of publicly available information, internally developed data, and other sources believed to be reliable. Investments in the securities market are subject to market risks. Please read all the scheme-related documents carefully.