Introduction
Today, I want to talk about something which is very specific and relevant to what we are experiencing now in March 2026.
Let’s call it a liquidity crunch in the market. It is still not a market crash.
Why I’m saying that there is a liquidity crunch?
It is because liquidity can also be seen in terms of the availability of buyers with deployable cash.
When many investors urgently want to sell, but there are not enough buyers ready to absorb those sales, we can say that the market’s liquidity is low.
We must also understand why we are facing such a situation.
The reason is mainly geopolitics driven by the trade policies of Donald Trump and his recent action on Iran.
In such a situation, when the future looks uncertain, all types of investors, especially large investors (institutions) start selling equity as their way of managing the potential risk.
When such large investors start selling, the general public also gets into panic mode, and they also join the sell-bandwagon.
Today, I’ll talk about how we can stay invested by training our minds psychologically, even when everything around us is telling us to exit.
I am not going to give you generic advice like “stay calm” or “think long term.”
I know these type of advise doesn’t work.
When your portfolio is down 25%, and all TV channels are crying about WAR, what you need is a more practical assurance.
So instead, I want to speak about my psychological blueprint, which will be more like my personal research on behavioural finance that I’ve learnt after investing in equity for last 15+ years.
But do not worry, I’ll not bore you with GYAN.
I’ll speak only what I do personally for myself to stay grounded in such times and not let panic drive my investment decisions.
The Liquidity Crunch
Let me begin with a simple truth.
Whenever there is a liquidity crunch in the market, prices don’t fall only because of fundamentals.
Most of the time, they fall because the investors need to cash out of the market for varied reasons.
During a liquidity crunch, people are not selling because they suddenly believe their investments have no value.
Most of the time, they sell because they urgently need cash.
- Maybe a company had taken loans, and now lenders are asking for repayment.
- Maybe mutual funds are facing withdrawal requests from investors, and they need to return money.
- Maybe the banks are increasing the interest rates, so investors are selling in the stock market, and will now keep their money in bank deposits.
In such situations, investors sell whatever they can sell quickly.
They will even sell good assets. Why?
Just to arrange cash. That is their immediate attention.
So prices fall not always because businesses are weak, but because many people are trying to raise money at the same time.
So this brings me to my first pillar
First Pillar: Protection from Emotional Pain
Now, psychologically, panic selling happening around us creates a dangerous illusion.
When we see prices falling rapidly, our brain interprets that as important information. Our brain says, the market “knows something” that we are not able to decode, that is why everyone is selling and I’m not.
This creates a sense of panic in our mind.
And in this state of mind, people often decide to sell.
But very often, during such liquidity stress, the market is NOT necessarily transmitting any coded information.
It is just transmitting the sense of urgency and panic that it is experiencing due to the herd effect in the market.
Moreover, our brains are not designed to process this kind of straight answers. We want to see it from a sceptical angle and hence make it more complicated than it’s actually is.
Behavioural finance research — especially The Prospect Theory by Daniel Kahneman and Amos Tversky.
— It shows that losses hurt roughly twice as much as equivalent gains feel good. This is called loss aversion.
For example, if a stock price falls by 20%, it will hurt twice as much as the feel-good felt when the price goes up by 20%.
So when markets fall sharply, the emotional pain we feel is disproportionately large compared to the rational financial damage. That emotional discomfort creates an urge to act. Not because action is optimal — but because action reduces anxiety.
Selling gives temporary psychological relief.
But relief is not the same as a rational decision.
So the first pillar of this blueprint is understanding that during a liquidity crunch, your brain is trying to protect you from emotional pain — not necessarily from financial ruin.
The Recency Bias
Now let’s go deeper.
There is another bias at play when the market is falling: it is called recency bias.
When markets fall continuously for weeks or months, we start projecting the recent trend into the future.
For example, if the last 60 days were negative, our mind quietly assumes that the next 60 days will also be negative.
But historical, volatility data shows something very different. It is important to keep a note of it:
When there is a liquidity problem (like a market crash), the fall in the market usually does not happen slowly and linearly. It comes like a tsunami wave.
For some time, prices have kept falling again and again because people are being forced to sell.
At that time, it will feel like there is no end to this price fall.
But this phase does not continue forever.
After most of the forced selling is done and people who urgently needed cash have already sold, the pressure reduces.
Once that heavy selling slows down, the market usually stops falling so sharply and starts becoming relatively stable.
That does not mean markets will instantly recover.
It means panic phases are not permanent. They are like forced regimes that stay only temporarily.
Second Pillar: Mood vs Valuation Model
As an equity investor, I always say this to myself, “Anchor yourself to models, not to your mood swings.”
What I mean is this — instead of taking decisions based on fear, emotions, or daily price movements, I must rely on a clear, rule-based valuation framework.
Let me explain what I mean by this.
Generally, when I buy stocks, I always use some valuation logic.
Even while selling, I tell this to myself, “I must apply the same logic.”
I am not talking about using some ambiguous trading logics used to buy and sell stocks.
I am simply referring to structured methods of valuing a business.
- It can be like a predefined
- P/E multiple or
- PEG multiple based on EPS growth, or
- It can also be the asset allocation rules or
- A more complicated intrinsic value estimation method.
Even in uncertain times, let these logics decide your sale decision and do not rely only on the news that is being broadcasting on TV channels.
For example, let’s use the analogy of asset allocation to make the decision when market is falling:
If before 2026 you defined that in your portfolio, the equity weight should not cross 75%. If the equity weight goes up or down by say +/-5% from this target, only then would you start rebalancing. If equity crosses the 80% mark, you will sell a part of equity to bring the equity weight back to 75% levels. If equity breaches the 70% mark, you will consider buying more equity.
Let this rule drive your buy or sell calls even in uncertain times like 2026.
Rules like this must override your mood, not the TV news debates.
Why is it important? Because this method is a part of equity discipline. You set a rule before buying a stock and you must stick to this rule even in bull and bear markets.
If you are not doing it, you are practicing reactive investing.
Here is a fact:
Reactive investing shows that investors who deviate from predefined strategies during stress, significantly underperform those who follow systematic rebalancing frameworks.
Reactive investors invariably are the losers. Why?
Not because they lack intelligence — but because unnecessary fear or greed tampers with their investing intelligence.
Reactive investing is a sign of weak psychology.
In a liquidity crunch, the perceived probability of “total collapse” rises dramatically in our minds, even if objective data does not support that magnitude.
So what do we do?
We must stress-test our models instead of stress-testing our emotions.
This is important.
Instead of asking, “Should I sell because things look bad?”
We must ask, “Is the fundamentals of the company going to change because of the current situation?”
Instead of thinking emotionally, try to think rationally. Ask pointed questions:
- What will be the effect on the company’s cash flow?
- If the cash flow is falling, is the intrinsic value compression to deep that that you should consider selling?
Herd Behaviour
At this instance it is also important to touch base the topic of herd behaviour.
During liquidity stress, narratives spread very fast — especially in today’s digital ecosystem.
You will hear: “Institutions are exiting,” “FIIs are pulling out,” “Credit markets are freezing.”
Even if some of that is true, the psychological impact is magnified through social reinforcement.
When everyone appears to be selling, inaction feels irresponsible.
But research on herd behaviour consistently shows that following the crowd during crisis periods is often a wrong decision
- The crowd reacts to the price.
- Disciplined investors react to valuation.
It may sound simple now, but at that moment when selling looks like the most logical thing to do, focusing on valuation is not so easy.
This type of mindset is a big difference between a good investor and an average investor.
Now I want you to note something which is very practical for us as retail investors.
Many of the equity investors today are first-generation equity participants.
Most investors have not lived through multiple full market cycles.
So when liquidity position is tight in the market, it feels unprecedented.
But if you examine history — global financial crisis, pandemic crash, etc— liquidity contraction is a recurring phenomena.
What changes is only the trigger, and what does not change is the psychological pattern of people.
As fear spikes among investors, volatility will expand, and then will come a phase of normalization, once forced sellers get what they want.
As an investor, our financial plan must assume such periodic stresses.
In equity investing, permanent smooth growth is only a myth. It is not a reality.
As soon as we start expecting volatility in our equity portfolio, our whole mindset changes. We start to see opportunity when everyone around us is panic-selling.
This takes us to the third pillar.
Third Pillar: Design Volatility
We must prepare a design for volatility before it arrives.
Your asset allocation should already reflect your risk capacity.
What does it mean?
How much you should invest in equity? For example, my portfolio is almost 65% Stocks, 20% Index, and 15% Debt and Gold.
This 65-20-15 ratio is my sweet spot. It helps me to stay in the market even when market is most volatile.
What I do when the market is crashing? Most of the time I’m doing as follows:
- My focus is on 20% Index (Nifty 50, Next 50, and Nifty Mid Cap). At the time when index is crashing, I buy the index.
- In such times, I’m ready to lower my 15% debt limit to even 1-2%. I divert this capital to buy the index.
If the value of my stock portfolio goes down by 30%, I never feel like exiting permanently.
If a 30% portfolio shrinking makes you exit permanently, then the issue is not the market crash.
The problem is misaligned allocation into equity. Probably, your psychology is suitable for such high equity holdings.
Expert investors would buy more when it seems like the whole world is falling around them. Investors would buy even during situations like 1914 WW-I, 1939 WW-II, 1973 Oil Crisis, 1987 Market Crash, 2001 Dot com crash, 2008 Financial Crisis, 2020 Covid Crisis, etc.
Now, what I’ll say may sound like preaching – a gyan, but it is important to remember:
“Staying invested in equity is not about being bold or taking unnecessary risk. It is about investing only that much money which you can comfortably hold through ups and downs without panicking.”
Conclusion
When there is a liquidity crunch, it feels like money has disappeared from the system. It feels like nobody wants to buy, and everyone only wants to sell.
That creates fear. It is true.
But this situation does not stay forever.
When prices fall enough and valuations become reasonable, money slowly starts coming back.
Investors who were waiting on the side begin to see value again.
So the real question is — how do you behave during that gap period?
If you base your decisions on data, on valuation, on your asset allocation rules — instead of reacting to daily news on TV — then this stressful period can actually become a time to rebalance properly.
You may end up buying some high-quality stocks at remarkable valuations.
But for this to happen, you must first learn to control your emotions.
Instead of running away from the market, you calmly adjust your portfolio according to your plan.
Staying invested does not mean doing nothing blindly.
- It means controlling your emotions,
- Reviewing your numbers carefully, and
- Sticking to your discipline even when it feels uncomfortable.
And honestly, in 2026, with the kind of volatility we are seeing, this mental discipline is probably more important than stock selection itself.
Thank you for listening.
List of the best stocks that have corrected the most in the last 3 months:
| SL | Sector | Name | Return the last 3 months | Remarks |
| 1 | Technology | COFORGE | -41.2 | Return the last 3 months |
| 2 | Technology | LTIM | -31.8 | I like it, but I’ll prefer holding them through ETFs or index funds |
| 3 | Technology | NAUKRI | -29.4 | – |
| 4 | Technology | PERSISTENT | -26.7 | Risky for me, but looks like a value in some sense |
| 5 | Technology | WIPRO | -24.8 | I like it, but I’ll prefer holding them through ETFs or index funds |
| 6 | Technology | ETERNAL | -20.5 | – |
| 7 | Technology | HCLTECH | -19.4 | I like it, but I’ll prefer holding them through ETFs or index funds |
| 8 | Technology | INFY | -19.0 | I like it, but I’ll prefer holding them through ETFs or index funds |
| 9 | Technology | TECHM | -15.2 | I like it, but I’ll prefer holding them through ETFs or index funds |
| 10 | Technology | BHARTIARTL | -11.3 | – |
| 11 | Consumer Discretionary | DIXON | -27.1 | Looks like a value to me after 27% correction ( |
| 12 | Financial | POLICYBZR | -24.6 | – |
| 13 | Consumer Staples | ITC | -23.5 | – |
| 14 | Materials | ASIANPAINT | -23.2 | very risky for me, but looks like a value when I see holding time as long as 5-7 years |
| 15 | Industrials | SUZLON | -22.7 | – |
| 16 | Financial | JIOFIN | -21.2 | I think it will be a safe compounder but people must be ready to hold it for 5-7 years |
| 17 | Real Estate | DLF | -19.8 | – |
| 18 | Industrials | INDIGO | -18.0 | – |
| 19 | Consumer Discretionary | INDHOTEL | -14.6 | – |
| 20 | Financial | HDFCBANK | -14.6 | I think it will be a safe compounder, but people must be ready to hold it for 5-7 years |
