Fund Manager Talk | Nimesh Chandan spots 2 behavioral biases driving investor decisions in a falling market

Nimesh Chandan, CIO of Bajaj Finserv AMC, identifies two key behavioral biases — fear and loss aversion — driving investor decisions in the current market downturn. As portfolios decline 30-40% from their peaks, many investors panic, close their SIPs, or hesitate to deploy fresh capital despite attractive long-term opportunities. Chandan explains how these emotions lead to irrational decision-making and what investors can do to navigate volatility with a disciplined approach. Edited excerpts from a chat:

The year 2025 is clearly turning out to be nightmarish for retail investors, particularly those heavily invested in smaller stocks. As high PE stocks have moderated quite a bit, do you see more pain ahead or gradual recovery as we step into FY26?
In the history of financial markets, one learns that though events may be unique, behavioural patterns are the same. Up to September last year, investors were experiencing a strong rally leading to quick gains in the equity markets. Especially, the mid cap and the small cap categories were seeing a strong up move. In many stocks of these categories, valuations were at or near all-time highs. Typically, such moves also set the ground for a correction. When there is even a small downgrade or disappointment, stocks fall sharply. Now, in many sectors, the valuations are back to reasonable levels. However, even in the current market, risk-reward is more favorable in large caps. Selective areas of mid cap and small cap stocks are now looking attractive.

Purely from a valuation