Learning From Losses: How 2025’s Market Turbulence Can Build A Stronger Portfolio For 2026

This year has been full of ups and downs. Global events, ranging from Trump Tariffs to ongoing conflicts/threat of new conflicts, have weighed on market sentiment. Not to mention, Indian equities were already trading at elevated valuations even before the start of the year.

As of November, financial institutions (FIs) have already pulled out Rs 2 lakh crore from public equity markets. “Not only equities, but asset classes in general have fared much worse than their peers in India. The rupee continues to be one of the worst performers this year, whilst Indian bond yields have largely been flat, providing less than appealing returns, even before taxation,” says Thomas Stephen, head - preferred, Anand Rathi Share and Stock Brokers.

Cumulatively, these events have taught painful yet important lessons to investors, especially after a strong bull run phase post-Covid, where essentially all asset classes were giving significant returns.

These market turbulences only reaffirm the need to have a robust portfolio in place that is aligned with the investor’s risk-taking appetite as well as the financial goals the investor wishes to achieve. A few important lessons investors can take away from this year include:

1. Market corrections are normal and to be expected: Every market, economy, and asset class has its own respective cycle. Nothing lasts forever - neither a bull run nor bearish periods. Hence, it is essential to remain undeterred by underperformance in a specific period and to maintain a long-term perspective.

2. Quality and fundamentals matter: This year has clearly highlighted the risk–return trade-off between Indian large-cap companies and the broader listed universe.

“While investors experienced sharper drawdowns in mid- and small-cap stocks, large caps have generally been more resilient. Even within the large-cap space, performance divergence is evident, with select pockets significantly outperforming others. This reinforces the importance of evaluating a company’s underlying fundamentals rather than chasing market hype,” says Stephen.

3. India is realistically plugged into the global market: Unlike earlier periods when global events had a limited impact on domestic markets - barring a few extreme shocks - India is no longer as insulated in today’s interconnected world. This has been evident in the way tariff uncertainties, along with rising global tensions and conflicts, have weighed on market movements and impacted the broader economy, with export-oriented industries bearing the brunt.

4. Importance of liquidity: There are two distinct aspects to consider. First, maintaining surplus liquidity or cash equivalents - often referred to as “dry powder” - can be particularly valuable during uncertain times. “This portion of the portfolio remains relatively insulated from market drawdowns, helping limit overall impact, while also providing the flexibility to deploy capital into opportunities that become attractive after market corrections,” observes Stephen.

Furthermore, if a large portion of a portfolio is allocated to illiquid or lower-quality assets, turbulent market conditions can make it difficult to exit these positions, thereby amplifying potential damage to the portfolio.

5. Domestic demand strength: All said and done, Indian markets and investors are far more mature than in the past. SIP flows have hit new highs, while domestic institutional investors have more than stepped in during periods of weak FII inflows. Coupled with the fact that India remains a strong long-term growth story, this bodes well for investors.

By keeping these lessons in mind and by staying disciplined and patient, investors can be better positioned to build more resilient portfolios for the year ahead.