ITC, RIL, HDFC Bank among top laggards as Nifty falls over 12% in 2026: Time to buy beaten-down stocks or wait for a recovery?

A laggard is a stock that underperforms its benchmark over a chosen period. When the Nifty is falling, a laggard loses more than the index or recovers less strongly. The label matters because it highlights relative weakness, not just an absolute price decline. A falling market can make many stocks look weak, but laggards fall the most compared with the broader market.

The article identifies ITC as the worst performer, down 34% this year. Maruti Suzuki India fell 32%, while HDFC Bank and HDFC Life Insurance declined 31% each. Jio Financial Services lost 30%. These declines were much steeper than the Nifty 50's reported 12% fall.

Laggard status does not automatically mean a stock is a bargain. Analysts still want investors to examine business quality, earnings expectations, valuations and downside risks. Some laggards may recover if their businesses remain strong, but external pressures, high capital costs and modest earnings could keep others subdued.

The highlighted stocks suffered unusually deep declines. ITC fell 34% so far this year, followed by Maruti Suzuki India at 32%. HDFC Bank and HDFC Life Insurance Company each declined 31%, while Jio Financial Services shed 30%. Infosys fell 29%, Tata Motors Passenger Vehicles 28%, Reliance Industries 26%, TCS 23% and Mahindra & Mahindra 22%.

Against these losses, the Nifty 50's 12% decline was considerably smaller. ITC's fall was 22 percentage points deeper than the index's decline. Even Mahindra & Mahindra, the least damaged stock in the highlighted group, fell 10 percentage points more. This shows that the group substantially underperformed the broader benchmark.

The contrast matters because index performance can hide sharper damage among major individual companies. Analysts link the correction to FII selling and changing investor preferences. Still, the article warns that investors should not buy solely because prices have dropped; valuations, earnings and risks remain important.

Foreign institutional investors, or FIIs, are major market participants that invest in Indian shares. When they sell large amounts, available selling pressure can exceed demand, pushing prices down. Broad selling can also weaken sentiment, causing other investors to become more cautious. The article links sharp large-cap corrections to FII selling and says cautious FII sentiment may keep valuations under pressure.

The effects can spread across companies and sectors. Heavy selling in index constituents can pull down the Nifty and reduce the market value of businesses. Lower valuations may make it harder for companies to raise capital cheaply. Investors may also suffer portfolio losses, while businesses face a higher cost of capital, a risk the article specifically mentions for some heavyweight stocks.

Selling does not necessarily prove that a company is fundamentally broken. The article says investors shifted toward AI-driven growth opportunities, cheaper emerging markets, safer developed-market assets and non-equity assets. If FII flows improve, quality companies with stronger earnings and reasonable valuations could attract renewed interest, but near-term volatility may continue.

Investors compare opportunities across countries and asset classes. Money may leave Indian equities when investors believe AI-related companies offer faster growth, other emerging markets look cheaper, or developed-market assets appear safer. Elevated bond yields can also make non-equity assets more attractive. These shifts change demand for Indian shares, particularly large companies held by foreign institutions.

The article says investors shifted from India toward AI-driven growth opportunities, cheaper emerging markets, safer developed-market and non-equity assets amid elevated bond yields. That shift helps explain why FIIs sold Indian shares and why large-cap stocks corrected sharply. Reduced demand can lower prices even without an immediate collapse in a company's operations.

This movement is not necessarily permanent. If Indian valuations become more compelling or earnings improve, investors may return. Vinod Nair said the correction created opportunities for long-term investors because valuations fell below historical averages. However, external headwinds and cautious FII sentiment could keep pressure on prices in the near term.

A one-year forward price-to-earnings ratio measures how much investors pay for each unit of a company's expected earnings over the next year. It uses forecasts rather than earnings already reported. The ratio helps compare current market valuations with historical levels, although forecasts can change. A lower multiple generally means investors are paying less for expected earnings than before.

The article says the Nifty 50 trades at around 17 times one-year forward earnings. Its five-year average is 19.5 times. That means the index is trading at a lower valuation than its recent historical norm, with the gap equal to 2.5 earnings multiple points. Vinod Nair therefore described the correction as creating opportunities for long-term investors.

The lower ratio does not guarantee immediate gains. Earnings may disappoint, external pressures may persist, and cautious FII sentiment may keep valuations under pressure. The article also says investors should consider earnings expectations and downside risks rather than relying on one valuation measure alone.

A share price is only one part of an investment decision. A stock can fall because investors expect weaker earnings, tougher competition, regulatory problems or costly financing. If those problems reduce future profits, the lower price may not represent a bargain. The relevant question is whether the company's value and earnings prospects justify the current valuation.

The article uses this principle directly. Somil Mehta says investors should focus on business quality, earnings potential and valuations instead of buying simply because prices have fallen sharply. He also highlights downside risks. For example, ITC faces cigarette taxation and regulatory risks, while Maruti Suzuki faces competition, changing consumer preferences and the electric-vehicle transition.

A lower valuation can still create an opportunity when the underlying business remains strong and the market has become too pessimistic. Nair noted that the Nifty traded below its five-year average. Yet near-term pressure may continue because of external headwinds, cautious FII sentiment, modest earnings expectations and high capital costs.

A company's eventual recovery depends on whether its future profits improve enough to justify a higher valuation. Earnings growth can rebuild confidence, while lower interest rates can reduce financing pressure. Higher rates have the opposite effect by increasing the cost of capital. Regulation can raise costs or limit growth, and competition can reduce prices and market share. These forces directly shape recovery potential.

The article gives several examples. ITC has cigarette, packaged consumer goods and hotel operations, plus strong cash generation, but faces taxation and regulatory risks. Reliance Industries has retail, digital services, new energy and energy businesses, although growth and profitability across them matter. Maruti benefits from vehicle ownership and new launches, but faces competition and the electric-vehicle transition. TCS has strong client relationships but faces uncertain technology spending.

Diversification can spread dependence across businesses, but it cannot guarantee success. AI may create new opportunities for TCS while also affecting near-term growth. Investors must monitor earnings, capital costs and execution. The article favours a staggered approach, diversification and realistic return expectations for long-term investors.