ESDS Correction and Broader Market Weakness Put Investors on Alert

Nidhi Thakur

September 28, 2026

The recent fall in ESDS Software shares, along with a broader correction across several Nifty stocks, has brought market valuations and earnings growth back into focus. ESDS shares hit the 5% lower circuit after the company reported a sharp sequential decline in its June quarter profit. At the same time, nearly 40% of Nifty stocks were trading more than 20% below their 52-week highs.

ESDS Software reported a 56.57% quarter-on-quarter fall in consolidated profit after tax to ₹29.27 crore in Q1 FY27 from ₹67.41 crore in the previous quarter. Revenue from operations also declined 20% sequentially to ₹133.65 crore. However, profit and revenue remained higher on a year-on-year basis.

Santosh Meena, Head of Research at Swastika Investmart, said the market reaction was linked to the sharp sequential slowdown after ESDS had delivered a strong post-listing rally. In his view, the company's long-term cloud and AI infrastructure story remains intact, but near-term delivery could remain uneven. He also noted that the sharp rise in valuation leaves less room for weak quarterly numbers.

The broader market has also seen a significant correction. Data reported by Business Standard showed that 18 of the 50 Nifty stocks were more than 20% below their respective 52-week highs, resulting in a combined market capitalisation erosion of around ₹31.35 trillion. Meena described the correction as a significant valuation reset after several large stocks had seen strong gains in earlier periods.

According to Meena, the broader Nifty correction has been linked to factors including profit booking, higher global yields, elevated crude prices and sector-specific concerns. He also pointed to pressure on IT and banking stocks from changing growth expectations, global yields, foreign investor flows and regulatory concerns.

At the same time, foreign investors have started returning to healthcare stocks. Business Standard reported that FPIs invested ₹15,800 crore in the healthcare sector between July and the first half of September 2026. Meena said healthcare continues to attract attention because of resilient domestic demand, pharma earnings and its relative performance compared with more volatile sectors.