Stock Market in a Downtrend: What Should Retail Investors Do?
The stock market is facing a strong downtrend, with FIIs selling heavily. Learn how retail investors should manage their investments and protect their money during market volatility.
MARKET NEWS
Harsh Garg
9/30/20266 min read
The stock market can be tense when prices continue to decrease and foreign institutional investors, or FIIs, sell large amounts. However, retail investors should avoid making rash decisions. A declining market might be risky, but it can also provide chances for investors that follow a strategy, retain liquidity, and invest according to their objectives.
According to NSE data, FIIs sold over ₹9,980 crore on September 29, 2026, while domestic institutional investors bought nearly ₹6,953 crore. On September 30, FIIs were net sellers, while DIIs continued to buy.
FII selling can put short-term pressure on the market, but it should not be the only reason for buying and selling stocks.
Why are FIIs selling?
These are factors that make FIIs sell their holdings in the Indian stock market. Some common reasons are:
Higher interest rates in the United States or other developed markets.
A stronger US dollar.
Attractive investment opportunities in other countries.
Global recession concerns.
Geopolitical tensions and uncertainty.
High valuations in the Indian stock market.
Profit booking after a long market rally.
Weak earnings expectations in certain sectors.
Withdrawal of money from emerging markets by global funds.
Do not panic sell good investments
The first step for any retail investor is to avoid panic selling. Selling everything following a market dip might turn a temporary decline into a permanent loss.
If you own fundamentally good companies or diverse mutual funds, reconsider your initial investment reasoning. Ask yourself: Higher interest rates in the United States or other developed markets.
Is the company still financially strong?
Are sales and profits growing over the long term?
Is debt under control?
Does the business have a strong competitive position?
Has the investment goal changed?
Did you buy the investment after proper research, or only because of market excitement?
If the business and investment thesis are solid, a drop in price does not necessarily indicate that you should sell. However, this does not mean that all declining stocks should be held. Exiting may be justified if a company has poor management, growing debt, declining profits, corporate governance issues, or a permanently damaged business model.
Continue SIPs but review your portfolio
Investors who invest through mutual fund SIPs should normally avoid discontinuing their SIPs just because the market is declining. SIPs allow investors to acquire more units when prices are low and fewer units when prices rise.
Investors should review:
Whether the selected fund matches their financial goal.
Whether the fund has excessive exposure to one sector.
Whether their portfolio contains too many similar funds.
Whether their risk level is suitable.
Whether they are investing in small-cap funds beyond their ability to tolerate losses.
A market drop can be an excellent opportunity to review asset allocation, but it is not always a good time to make emotional changes. An investor with a 10-year goal, for example, may continue to invest in diversified stock SIPs throughout a market drop. However, an investor who requires funds after six months should not store them in stock funds just because prices have declined.
Do not invest all your money at once
A declining market may continue to crash for a longer duration than anticipated. As a result, investors should avoid investing all of their available funds in a single transaction. Investors should review:
Instead, consider investing gradually through:
Regular SIPs.
A systematic transfer plan, where suitable.
Staggered investments over several months.
Asset-allocation-based rebalancing.
Buying only after proper research.
Gradual investing prevents the risk of investing all of your money at a transient market peak or during a temporary recovery. If you have ₹1,20,000 accessible for long-term investment, consider dividing it into many payments instead of investing it all at once. The specific strategy should be determined by your goals, risk tolerance, and financial circumstances.
Keep an emergency fund
Before growing equity investments, be sure you have sufficient emergency funds. An emergency fund keeps you from selling investments at a loss when a sudden expense arises.
An emergency fund may be required for:
Job loss.
Medical expenses.
Family emergencies.
Major repairs.
Temporary income disruption.
The amount depends on your circumstances, but it should be maintained in relatively safe and liquid assets. Equity investments should not be considered emergency reserves because their value might fall dramatically during a market crash.
Be careful while averaging
Averaging down means buying more units as the price declines. It can be useful when the investment is fundamentally good and the investor has a long-term strategy. However, averaging down is risky when the price is falling because the business is failing.
Before averaging, check:
Whether earnings are improving or declining.
Whether debt is increasing.
Whether promoters have reduced their stake.
Whether cash flows are healthy.
Whether the valuation is reasonable.
Whether the sector is facing a permanent structural problem.
A stock decreasing from ₹500 to ₹300 does not necessarily make it cheap. It may decline more if the company's fundamentals are poor.
Focus on asset allocation
A strong portfolio should not rely only on equity. Asset allocation involves allocating investments among several asset classes based on your objectives and risk tolerance.
The portfolio may contain:
Equity for long-term growth.
Debt investments for stability.
Cash or liquid investments for short-term needs.
Gold or real estate for diversification, depending on the investor’s situation.
Each person's ideal distribution is unique. A young adult individual with a consistent income and a long investing horizon may be able to accept higher stock exposure. On the other hand, someone nearing retirement may demand a larger allocation to safer assets. The goal of asset allocation isn't to avoid every fall. Its purpose is to prevent a single market fall from badly affecting your entire financial plan.
Don't try to predict the market bottom
Many investors wait for the ideal bottom before investing. In reality, no one can pinpoint the exact lowest point of a market downturn. The market may decline due to a single unfavourable incident and then recover fast once conditions improve. It could potentially remain weak for months or years.
Instead of asking, “Has the market reached the bottom?" ask:
Is my portfolio properly diversified?
Am I investing money that I will not need soon?
Is my asset allocation suitable?
Can I tolerate another 10% or 20% decline?
Am I buying quality investments at reasonable valuations?
This approach helps investors make decisions based on preparation rather than prediction.
What different investors should do?
Long-term mutual fund investor: If you're investing in diversified equities mutual funds for the long term, keep your SIP if your income, goals, and risk tolerance haven't changed. Examine the fund's performance and portfolio, but avoid making frequent adjustments based only on short-term market fluctuations.
Direct stock investor: Check the foundations of each company. Do not hold a stock simply because its price has dropped. Strong and poor companies can both fall during a correction, but their long-term recovery prospects can be vastly different.
New Investor: Do not rush into the market just because prices are lower than usual. Begin with a small amount, learn about diversification, and increase your investment over time. Avoid complex assets before you fully understand their risks.
Short-term traders: Reduce position sizes and follow tight risk-management protocols. A strong downturn can lead to unexpected rallies and sharp reversals. Never risk money that you can't afford to lose.
Bottom line
Heavy FII selling indicates that market volatility may remain high, but it is not a complete investment plan. Recent NSE data suggest that FII selling has been accompanied by DII purchasing, suggesting that various groups of investors may have differing perspectives on the market.
Retail investors should concentrate on what they can influence: asset allocation, diversification, investment horizon, emergency savings, position size, and discipline. A slump should not force you to sell strong investments, but it should encourage you to reduce unnecessary risk and carefully reassess your financial plan.
The correct response is neither blind buying nor panic selling. It is a well-planned, gradual, and goal-orientated method. This post is intended for educational purposes only and should not be construed as personal investment advice.
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