{"id":7152,"date":"2015-03-31T15:50:30","date_gmt":"2015-03-31T10:20:30","guid":{"rendered":"https:\/\/blog.fundsindia.com\/blog\/?p=7152"},"modified":"2020-02-10T14:05:26","modified_gmt":"2020-02-10T08:35:26","slug":"fundsindia-view-when-a-correction-happens","status":"publish","type":"post","link":"https:\/\/fundsindia.com\/blog\/mf-research\/mutual-funds\/fundsindia-view-when-a-correction-happens\/7152","title":{"rendered":"FundsIndia View: When a correction happens…"},"content":{"rendered":"

\"panic\"<\/a>Yes, the equity markets fell close to 8 per cent from its peak on March 3 until last week. Did you notice it? Unlikely, for it was gradual, with a fall of not more than about 2 per cent a day at the most. This would not have been visible if not for the media bombarding you with stories of unwinding of positions in equities during the financial year end, and the geo-political crisis in Yemen.<\/p>\n

Well, that\u2019s how bull market corrections happen. They are not sudden, nor swift; unlike the downturn seen in a year like 2008.<\/p>\n

For now, nothing internal in our economy changes, save for the fear of the rise in the price of crude oil. As things stand, the short-term surge may be a knee-jerk reaction due to the military involvement of oil-producing nations in the Yemen crisis (Yemen, by itself, is not a key oil producer). At present, experts do not view this short surge in crude prices as being any \u2018turning point\u2019 for the downward trend in crude as supply remains in excess.<\/p>\n

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While we will have to see what dimension this crisis takes, it is easier for us to look internally and assess where we stand.<\/p>\n

In the Indian equity market –\u00a0 the correction, although not too deep, has brought the market close to fair valuations. For instance, the Price-earnings Ratio of the Nifty is at 22\u00a0 times, down from 24 times on March 3. What does that mean? It means stocks are now less expensively valued than they were earlier. This presents better opportunities for fund managers to pick\/average quality stocks.<\/p>\n

These corrections are good, necessary, and prevent too much steam\/bubble from building up. We will not be surprised if markets slide further from the current levels.<\/p>\n

We would also not be too worried by such a correction because, aside of the markets, the reforms of the Government and\u00a0structural changes are all moving as anticipated, thus continuing to buttress the revival story. Nothing changes there. An improvement in the economic scenario at lower valuations in the markets only spells opportunities.<\/p>\n

Still, a correction invariably bothers most investors. We have typically seen investors react to corrections in two ways:<\/p>\n