What is contrarian investing and how it works in volatile markets

Contrarian investing is an approach where investors look to buy assets when market sentiment is weak and prices have fallen, rather than when optimism is high. The idea is that during periods of stress or uncertainty, stock prices can sometimes decline more due to sentiment than changes in underlying business performance.

In the current environment, global uncertainties, including geopolitical tensions, have contributed to volatility in equity markets. Some investors and advisors say such phases often lead to broad-based selling, which can also affect fundamentally stable companies.

How market corrections are being interpreted

The recent decline in equities has largely been linked to global risk-off sentiment. In such phases, market participants often reassess risk, which can lead to short-term price corrections across sectors.

Financial advisors note that mutual funds are commonly used in such environments because they provide diversified exposure and are managed by professional fund managers who can adjust portfolios based on market conditions.

Pankaj Mathpal, Founder of Optima Money, said that systematic investing in mutual funds, particularly in large-cap and mid-cap categories, is often considered by long-term investors during market declines.

Valuations and market levels

According to market observers, recent corrections have moderated valuation levels in parts of the equity market. Large- and mid-cap segments, in particular, are now seen by some participants as trading closer to longer-term averages compared to earlier periods of higher valuations.

Growth expectations

Economists expect India’s growth to remain steady in the medium term, with activity spread across sectors such as manufacturing, consumption, financial services, infrastructure, healthcare, education, power, and digital services. This broader growth is expected to reflect in corporate earnings over time.

Large- and mid-cap mutual fund performance

Large- and mid-cap mutual funds have delivered steady performance over the past three years, according to category data.

The Nippon India Vision Large and Midcap Fund has delivered a three-year annualised return of around 17.91%. ICICI Prudential’s large and mid-cap fund has returned about 16.41% over the same period. Bandhan and Invesco funds have posted returns of 15.33% and 14.97%, respectively, over three years.

Investor approach in such phases

Advisors generally say that large-cap funds tend to offer relative stability during volatile periods, while mid-cap funds may provide higher growth potential over time. Many also highlight that systematic investment plans (SIPs) are commonly used to manage market fluctuations rather than attempting to time entry points.