Winter is Coming!

It took me a month to write this blog because I was grappling with a complex puzzle- Where we are in the current market cycle and Which previous cycle does this resembles most with. 

For those of you who would like to understand the significance of the question and my quest for its answer, here is a primer; Equity markets move in cycles. There are larger cycles which last multiple years; it generally originates from the bottom of the previous cycle and lasts until it meets its end over several years. For example, in the global markets, the US markets had a long bull run from early 1980s until the dot-com crash in 2000-02 which remains one of the longest uninterrupted bull runs since then. Then it was the 2003-08 global bull run in which Indian market went from Sensex 4000 to Sensex 21000 before the Global Financial Crisis burnt it down alongside the US housing bubble fuelled by subprime lending. 

To make serious money in investing, history is your most important teacher. Since the human sins of greed, fear, hubris etc remain the same, all markets eventually follow a larger pattern as indicated above. The current cycle traces its origin from the dark days of Covid in April 2020 and since then, it was marked by global liquidity infusion at unprecedented scale, the AI story, the small cap mega run in India fuelled by domestic money etc. So if you have read my previous blogs posted in January 2026, you would have understood that I had feared of some correction in this market and I had been grappling with that puzzle ever since. Here is my assessment-

A. The cycle we are in has only one similarity with 99-00 which is that the absolute visible leader is tech/AI. Where it differs is that back then, the rally was entirely equity and the junk which went up did not have much debt on its balance sheet and it collapsed on its own due to gluttony and not indebtedness; the real issue today is that the market has already moved past the rotation from Nasdaq to Dow over the past one year and the alt assets- commodities, BTC all are not making fresh highs so the last refuge of the bull is slowly fading. Also, the real parallel of this market is the very genesis of this bull market- Mag 7 have pristine balance sheets and they can fund forever. 

However, the PE funds have all taken up the role of subprime lenders and the investment banks who are now exposed to negative cash flows of their borrowers- much like NINJA loans to strippers in Vegas. Once the contagion picks up pace, the direct lenders take heat alongside their borrowers; if it gathers steam, the borrowers of the PE funds will face the music and then the bond holders of Mag 7 might also not be in a position to buy debt because nobody opens shop to buy $100 B of Mag 7 debt and nothing alone because that’s the Manhattan of 2007- pristine. But any lender which loans for Manhattan also gets the lowest return and thus needs to invest in Vegas and Florida to generate return. 

 

B. The above assessment indicates that the time we are in resembles very much like late 2007 to early 2008 when the Dow had already hit its peak in October 2007 while Sensex went on to make fresh highs in January 2008. So if you map that today- Bitcoin made its peak in October and is down 40% plus; Silver too has corrected, Indian markets have made a fresh  all-time high in January 2026 and are now breathing heavy and so have the US markets. A closed ended fund of Blue Owl capital recently halted redemptions, much like BNP Paribas in August 2007 while the AI bubble is now being unraveled one sector at a time by AI itself- Anthropic killing software, brokerage etc. Thus, the Indian IT stocks which were already down 30% from their highs are now falling like penny stocks and the IT index is down 20% in a month- something which has NEVER happened in history. TCS is falling more in a day than it did during Covid while the global PE Giants- KKR, Blackstone, Apollo, Carlyle are all down 40% from their all-time highs.

C. Thus, the equity valuations of dot-com bubble- concentration in few names, excessive narrative about AI is now meeting with the credit crisis of 2007-08 and the market now moves at 5-10x the speed of even 2020. Thus, what could take 18 months back then can happen in six months or less with sharper corrections, ferocious short-covering sucking everybody in before resuming the downward spiral. It’s not a possibility but almost a certainty that we are going to witness a carnage as severe as last seen in 2008 but on a bigger canvas fuelled by lightening velocity of algo-driven trading. How much the markets will fall, how long will it take remains to be seen but I have zero doubts that the Winter is not coming but has already started.

D. The great Indian decoupling myth-

1. The SIP story: Every time there is a rally in Indian markets, we are told that India is different, and the market has decoupled from global markets, and we will be saved by the SIP flows. Let’s stay here for a minute. These people believe that the people investing through SIPs are not worried about negative returns over long periods of time. This is like saying 9 crore Indian investors will keep pumping money irrespective of the rate of return in the markets without natural greed and anxiety! The SIP was sold to millions of households as an instrument to make 12-15% CAGR over multiple years and once the 3-year return turns to low single digits, any reasonable person will first rush to stop his next monthly debit. SIP was an instrument to bring household savings into markets and not to create an artificial floor to allow FII and Promoters exit at stupid valuations. 

Just look at the Mutual Fund ads from early 2020s to now. First it was SIP as a medium to dream home, dream car, 15% at least over long term etc. Now it is- please continue your SIPs. The veterans know what’s happening. The same pattern was played with ULIPs in 2006-08 when millions of Indian households were sold assured return type plan which made the entire generation wary of any insurance product. I don’t know if the SIP will become such a word but once the Nifty falls below 21000, the three-year return will be zero and then who knows!

2. In every major global correction, the Indian markets fall with a lag and fall more on the way down. In 2008, we were first told that Indian banks have zero global exposure, our domestic consumption has no relation to US subprime lending etc. but when the tide went out, US markets fell 50% and Sensex fell from 21000 to 8000! Nifty went down from 6500 to 2500. During early days of Covid, we were told Covid is only for cold weather, Indians drink turmeric and ginger so it won’t matter etc. but while the S&P 500 fell 34%, Nifty fell 40%. The Indian markets are decoupled ONLY on the way up- we may not rally while the world rallies but on the way down, the correlation is not just 1 but greater than 1! If the US market goes down 20-30%, rest assured that the Indian markets will fall 25-35% at least.

3. If the decoupling was even remotely true, ask yourself this question- why did Indian IT stocks fell like a pack of cards when they had already time and price corrected over the past three years. Now replace IT with Indian markets and read that again- the so-called market experts are saying that since we have already corrected over the past 18 months, we will not fall much. Say that to people who bought TCS at 3000 after the India-US trade deal only to see it fall to 2550 today. Only till such time when the Indian markets do not take cues from the US markets, the theory of decoupling has some semblance. Once the mother ship catches fire, our markets will have no place to hide

E. To Conclude, I believe that we will witness once in a generation market correction over the next 12 months. The top has most likely been made sometime earlier but nobody knows how markets will behave. One thing is for certain, the winter has begun its onset and is going to be brutal and frosty. Our cash position which looked foolish post the US trade deal announcement is beginning to look decent and if Lord Mahakaal blesses us, we will remain active buyers when the street is soaked in blood and for those of us who are prepared and are willing to remain sober, this will be the generational buying opportunity!