Stock Market Fall – opportunity or threat – Burning Issues – Free PDF Download

ON THE RISE

• A sharp rise in Covid numbers over the last two weeks — new cases crossed a record daily high of 53,400 in the government’s latest update — has unnerved the markets, which have already been marked by concerns over high valuations and rise in bond yields. The benchmark Sensex fell 740 points or 1.5% to close at a nearly two-month low of 48,440.
•  Since the recent rally that started alongside the Budget announcements on February 1, it is the first time the Sensex closed below that day’s closing (48,600) and it has lost 3,713 points or over 7% since the all-time high closing of 52,154 on February 15.

What are the concerns?

• There have been concerns on both the domestic and global fronts.
• Besides the spike in Covid numbers in India and announcement of lockdowns in several districts, there have been concerns over the rise in bond yields in the US and the domestic market. There is a feeling in the market that if bond yields in the US rise further, it may impact the fund flow into emerging markets.

What are the concerns?

• The US Fed has indicated that there may not be policy rate hikes through 2023 and it will continue to support the economy and maintain liquidity, yet the foreign fund flow into Indian equities has slowed in March.
•  Until March 25, foreign portfolio investors had invested a net of Rs 10,100 crore into Indian equities, the lowest monthly net inflow since September 2020, when they pulled out a net of Rs 7,783 crore.

BOND YEILD

• Bond yields have been rising across the world. The sudden rise moderated the enthusiasm of equity market participants throughout the world.
• An example that showed the relation between bond yields and stock markets is the taper tantrum of 2013, when a sudden rise in bond yields caused markets to slide as mass bond selling was witnessed.

Will the fall continue?

• A lot will depend upon the Covid trajectory. If cases continue to rise, various local administrations may take steps that may impact economic activity to an extent, which in turn may impact the markets. If the numbers start to fall and vaccination gathers more pace, the markets may regain their enthusiasm.Market participants, however, feel that a 7-10% fall in the markets after a 40-50% gain is not something to be worried about; it should be seen as a part of market movement.

What should investors do?

• A number of existing investors have a feeling that they should have sold a portion of their holding when the Sensex hit the peak in February.
• While that may hold true to an extent for some investors in their late 50s or nearing retirement, it should not be a big reason to be worried about.

What should investors do?

• There are others who agree to this and say that while there are some valuation concerns, investors should look to enter into large companies.
• Investors should, however, follow a staggered approach of investing. They could go for either mutual fund investment through the SIP mode, or direct stock-picking in a staggered manner.

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