When the market falls…

If you have started receiving WhatsApp messages that say – ‘BSE: Bombay Se Exit and P/E: Plunge endless’, you know the bear sentiments are in full force. And, that is how it feels in a bear market. How do we say that? When 95% of the stocks in the BSE 500 have fallen 15% on an average in the past 1 month, you know you are dealing with a bear’s grip.

For those of you who entered the equity markets in the past 1 year, the high negative returns in your portfolio may paint a scary picture. If you are new to the capital markets, there is only one thing you need to know, market declines happen, and they happen quite regularly. Globally if you consider the last 10 decades of data, stock markets have experienced a 10% drop at least once a year. A 20% decline occurred every 3.5 years on an average and a 30% decline once in 10 years on an average. There have also been years when in the same year of large declines, markets ended with positive returns. In other words, market is a roller coaster.

The current correction has all signs of a bear market and here are some of those signs: one, extraneous factors such as trade war and strengthening dollar and rising yields has resulted in significant FPI pullout. Two, internal factors such as challenges in dealing with crude price rise and liquidity and governance issues in the financial space have led to sharp corrections in most pockets. Three, market has been ruthless to all sectors barring couple of sectors: IT, where the dollar benefit is evident and to a smaller extent to metals, given the commodity strengthening globally.

In all this though, it is interesting to note that none of these are factors pose a ‘crisis’ like the situation of 2008. All of these are can be dealt with. The government and RBI are cognizant of any spillover effect in any crisis of confidence whether it is about liquidity or governance.

However, there are more headwinds between now and up until the central elections in May 2019. November will see the sanction on Iran by the US. This is vital from a crude supply perspective for India. Some of the state elections will also offer cues for the upcoming Central Elections. In the near term, earnings season could provide relief rally in some stocks while severely punishing others even for marginal underperformance.

In all, volatility is the name of the game here. If you wore your seat belts, closed your eyes to the daily ticker moves and do not try to get off midway, we see no reason for you to be hurt.

Happy market sale!