Hyderabad: You must all have been wondering why the market is witnessing a steepest fall, and what one should have done. You might have seen the fall before-much steeper than this, but now the fear factor had grown exponentially.
COVID-19 has become pandemic from epidemic, hitting not only our Market but global markets too. More than the Corona Viral impact, the fear impact is brutally devastating, creating multifold disruptions in world trade.
Major Indices Sensex 4 weeks back trading at 41 Thousand+ level fell to 34 Thousand+ level now which is a correction of almost -18% & similarly our NSE Nifty fell from 12Thousand + level to 9900 + levels which is again a correction of almost -18%.
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On this Friday market volatility touched its peaks , when markets opened indices hit lower circuit and market halted for 1 hour, when markets reopened, indices recovered from their lows and closed for the day at 4%+ positive gain.
This volatility in markets drawing correlation between 2008 market correction vs 2020 market correction among investors. Let’s see whether 2020 market correction is similar to 2008 correction or not.
2008 v/s 2020:
- During the 5 Year Bull phase of 2003-2008, Nifty 500 Index delivered 48% CAGR returns. During the 2015-2020 Bull phase, however, the same index delivered just 8% CAGR returns. Similarly, Mid & Small caps delivered 57% & 42% CAGR return in that period whereas in 2015-2020 period Midcaps & small caps delivered lower than broader index returns, it highlighting lack of euphoria in markets
- Markets saw one of its strongest rallies starting August 2007, lasting up till January 2008. Nifty 500 Index rose 55% in the last 135 days of 2007, compared to a 10% rise in the same period in 2019. This rise which preceded the ensuing fall in 2008, was very different compared to that seen in 2020
- Nifty 500 total market cap to nominal GDP ratio had increased to 83% as on 31st March 2008. Which since FY06 till FY20, has averaged around 70%. And currently is at 60%, which is the lowest level in the last 10 years. Nifty & Sensex currently trades at a substantial discount to its Fair Value. Markets have not traded at such discounts since FY12. While there may be some downgrades to Fair Value in the near term, however, these are attractive valuations for long-term investors
So all the above 3 pointers say 2020 correction is not the same as 2008 euphoria correction. The only similarity is Markets started falling in January of 2008 and in January 2020.
What History Say’s:
Whenever you are in doubt, always look at the past and examine whether it has happened earlier. If so, investigate if it has recovered or not.
In fact, it has happened many a times before, and eventually it bounced back much stronger than when it fell. As long as our investment objective is oriented in the long term.
| Year | Market |
| 1992 | Sensex down by 54% in a year and up by 127% in next 1.5 years |
| 1996 | 40% down in 4 years and 115% in next year |
| 2000 | 56% down in 1.5 years and 138% up next 2.5 years |
| 2008 | 61% down in 1 year and 157% up in next 1.5 years |
| 2010 | 28% down in 1 year and 96% up in next 3 years |
| 2015 | 22.3% down in 1 Year and 25% up in next 7 months |
It is really not known how long will the impact be. But what history tells us, however, the fall be, it was recovered soon. There is not much change in most of the companies listed in the stock market, the price may alter but the value of the company never decreases.
What investor need to do now:
Don’t sell your equity investments in a panic:
Pained by the market fall, if you withdraw now, you are converting your notional loss into real loss and the chances of recovery takes much more time.
It is time to show a lot of patience and faith. Equity market needs just one good news to take reverse direction. Let us not forget, it is not only the market volatility, but our own actions are also equally detrimental to our dreams.
Let us not allow this fear due to market turmoil to destroy our hard-earned money.
If you have Lump sum & you want to invest:
In this case, instead of investing entire money at one go, park it in liquid funds and divide it in 6 parts & invest 1 part immediately and start deploying whenever market fells more than 1 %, if not transfer entire money through systematic transfer plan from liquid funds to equity funds for a maximum period of 3 to 6 months’ time.
If you are a SIP Investor:
This is the best time to grab more units if possible increase your SIP amount if it looks difficult to increase the SIP amount for a prolonged period, try to cut down some expanse and increase your SIP amount for at least next 12 months’ time. So that you take the opportunity when valuations are lower & you can accumulate more units in this downward trend.
If you are a direct equity investor:
Instead of buying low-quality stocks trading at cheap valuations, time like this gives us an opportunity to acquire good quality stocks at reasonable valuations.
If you already have low quality stocks in your portfolio , this is the best time to get rid of them and start acquiring good quality companies stocks.
Stick to your asset allocation:
Remember based on your risk apatite, diversify your investment in various asset classes like (Equity, Debt, Gold & real-estate). Don’t overboard yourself in any one asset class, diversify it based on your financial goals.
Stop watching your portfolio on daily basis:
All investors should avoid getting swayed by market movements & sentiments. Just because the portfolio shows lesser value today, it does not mean this will continue forever ultimately wiping out entire money. NEVER EVER. The best way to address this issue is not to constantly watch the portfolio until the market is corona-free.
In life everything takes time. Just because your portfolio value keeps flashing every day in negative, You should worry about achieving your long-term financial goals. It is needless to give importance to something just because it is reported daily. Remember, this too shall pass.
(Article by Sai Krishna Pathri, Personal Finance Expert)
(Disclaimer: The views and investment tips expressed above are solely of the author and not those of ETV Bharat or its management. ETV Bharat advises users to check with certified experts before taking any investment decisions.)
