Why Are Indian Markets in a Time Correction and What Will Restart the Credit Cycle?
About the Current Market and Credit Cycle Phase
Indian equity markets are navigating a phase that is best described as a time correction rather than a price-led collapse. According to Motilal Oswal, the slowdown in credit growth to nearly 8–9 percent has acted as a drag on broader economic momentum, even as headline indices have avoided deep drawdowns. This phase is characterised by muted index returns, sector rotation, and valuation compression rather than panic selling.
Unlike past cycles where sharp corrections reset valuations abruptly, the current environment reflects a more orderly adjustment. Earnings continue to grow, liquidity remains supportive through domestic participation, and inflation has stayed benign. As a result, markets are digesting excess optimism through time rather than price.
The distinction between time correction and price correction is crucial. In a time correction, markets move sideways while fundamentals gradually catch up with valuations. This is exactly what Motilal Oswal believes is unfolding now, with price-to-earnings multiples compressing even as absolute earnings continue to expand.
Motilal Oswal – Key Market Observations
🔹 Credit growth moderation to 8–9 percent has slowed economic momentum
🔹 Strong retail participation and mutual fund inflows have cushioned downside risk
🔹 Markets are correcting through time with P/E multiple compression
🔹 Low inflation provides policy flexibility to support growth
🔹 A credit growth rebound to 14–15 percent is needed to restart the cycle
One of the most important stabilising factors in this cycle has been domestic liquidity. Retail investors and systematic investment plan flows have consistently absorbed supply, preventing sharp corrections even as foreign institutional investors remain selective. This domestic bid has fundamentally altered market behaviour compared to earlier cycles dominated by foreign flows.
However, liquidity alone cannot restart a full-fledged economic cycle. Motilal Oswal clearly points out that a meaningful revival requires credit growth to accelerate back to the 14–15 percent range. Until that happens, markets are likely to remain range-bound with pockets of relative outperformance.
Credit Growth and Market Impact
| Credit Growth Trend | Economic Impact | Market Behaviour |
|---|---|---|
| 8–9% | Moderate demand, cautious capex | Time correction, valuation compression |
| 14–15% | Strong investment and consumption | Broad-based market rally |
Low inflation is another key variable shaping this phase. With price pressures under control, policymakers retain the flexibility to adopt accommodative measures when required. This policy optionality reduces the risk of abrupt tightening and supports the case for a gradual revival rather than a sharp downturn.
Historically, cycles turn when both credit availability and confidence align. At present, balance sheets are healthier, but risk appetite among lenders and borrowers remains measured. This is why the recovery has been uneven across sectors.
Strengths and Weaknesses of the Current Phase
|
🔹 Stable macro environment 🔹 Strong domestic liquidity 🔹 Improving corporate balance sheets 🔹 Policy flexibility due to low inflation |
🔻 Slowing credit momentum 🔻 Valuation compression pressure 🔻 Delayed capex recovery 🔻 Uneven sectoral performance |
Motilal Oswal’s sectoral outlook provides important clues on where leadership may emerge once the cycle turns. Rate-sensitive sectors are expected to be the earliest beneficiaries of any revival in credit growth and policy support.
Opportunities and Risks Across Sectors
|
💡 Housing demand revival with lower rates 💡 Automobile volume recovery 💡 Capital goods order inflows 💡 PSU bank re-rating on earnings visibility |
⚠️ Prolonged credit slowdown ⚠️ Global macro shocks ⚠️ Delayed FII participation ⚠️ Earnings downgrades if demand weakens |
The brokerage remains constructive on banks, particularly PSU banks, which are now structurally stronger with healthier asset quality and attractive valuations. Q4 is expected to be a strong quarter for banks as earnings momentum improves.
Motilal Oswal also notes that foreign institutional investors could return once either earnings momentum strengthens further or valuations normalise to more compelling levels. This creates a dual trigger for renewed inflows.
On the technology front, the brokerage views recent weakness as valuation-led rather than structural. Artificial intelligence is reshaping business models and service offerings, and companies that adapt effectively could emerge stronger over the medium term.
For market participants, this environment demands patience and discipline. Range-bound markets often test conviction, making structured participation strategies valuable. This is where calibrated approaches such as a systematic Nifty Tip can help navigate volatility without emotional decision-making.
Valuation and Investment View
The current phase should be seen as a consolidation within a broader earnings upcycle rather than the end of the trend. As valuations compress and earnings catch up, the foundation for the next leg of the market is being built.
Investors should focus on sectors linked to credit revival, strong balance sheets, and reasonable valuations. Tactical volatility can be managed using disciplined tools such as a structured BankNifty Tip, while long-term allocations remain aligned with India’s structural growth story.
Investor Takeaway
Derivative Pro and Nifty Expert Gulshan Khera, CFP®, believes the market is undergoing a healthy time correction driven by credit moderation and valuation normalisation. With inflation low and balance sheets strong, the conditions for a renewed credit-led cycle remain intact. Investors should stay patient, focus on earnings quality, and prepare for leadership from rate-sensitive sectors as the cycle turns, with ongoing insights available at Indian-Share-Tips.com, which is a SEBI Registered Advisory Services.
Related Queries on Market Cycles and Credit Growth
What is a time correction in the stock market?
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SEBI Disclaimer: The information provided in this post is for informational purposes only and should not be construed as investment advice. Readers must perform their own due diligence and consult a registered investment advisor before making any investment decisions. The views expressed are general in nature and may not suit individual investment objectives or financial situations.
