Is ‘Buying On Dips’ A Sound Stock Market Strategy? Find Out

‘Buy on dips’ is a popular theme in equity investing, and so it should be. The ability to buy cheap when analysts and market pundits say otherwise is golden. The subject, however, does carry its nuances. While buying on dips can deliver strong results when done selectively, it is far from a universal rule. Whether the strategy makes sense depends less on the fall itself and more on what is causing it.

“At its core, buying on dips works only when the underlying business or economy is likely to survive the storm that triggered the fall. If prices are falling because of temporary uncertainty, sentiment-driven panic, or exaggerated headlines, the dip can offer genuine value. However, if the decline reflects permanent damage to earnings, balance sheets, or business models, then the price of what you’re buying may never rebound quickly,” says Ankit Patel, Co-founder & Partner at Arunasset Investment Services.

Stock markets frequently overreact to news that does not materially alter economic or corporate fundamentals. Also, during these periods, there is big news doing the rounds. And this sometimes gets mixed up with things that do affect businesses and things that don’t.

Political noise, short-term policy uncertainty, global risk events, or sensational headlines often trigger sharp reactions even when their long-term impact on profitability is limited. In such situations, stock prices fall, but not long-term earnings and growth prospects.

What investors must always remember is that markets ultimately follow corporate profitability in the medium term. “Investors must never forget this rule. Earnings growth, margins, and revenue expansion determine where stock prices settle over time. With earnings growth being the prime cut among the three. Short-term volatility may be driven by news and emotion, but sustained market direction tracks profits,” informs Patel.

The Indian market in 2025 is a useful case. The Nifty 50 delivered an estimated return of approximately 10 to 12 per cent during the year, despite persistent volatility and periods of sharp corrections, caused by news flows regarding geopolitics.  This performance broadly mirrored corporate profitability and revenue. Aggregate earnings growth for Nifty companies in 2025 is estimated to be in the mid-single digits, roughly 6–8 per cent, while revenue growth was around 7–9 per cent. Market returns, even in such an exceptional year, did not disconnect from fundamentals.

This also highlights an important nuance. Buying on dips works better in markets or stocks where earnings are still growing or are expected to grow after the storm passes. When prices correct faster than profits, valuations improve, and future returns become more attractive. On the other hand, when earnings themselves continue to be under pressure, repeated dips may simply reflect this.

“There are also some practical considerations that investors must keep in mind. Timing dips precisely is extremely difficult. Markets can remain volatile longer than expected, and prices can fall further after an initial correction. The important thing here is to simply buy at an attractive price and not time the bottom. Finding attractive prices is easy, while timing the bottom is impossible,” advises Patel.

Buying on dips, thus, can be a powerful strategy, but only when anchored in fundamentals. Without that anchor, it risks becoming speculation rather than investing.