The last few days have been challenging for investors. The BSE Sensex and NSE Nifty dipped more than 30% in the past one month amidst rising fear of Coronavirus Pandemic.
With Covid-19 reaching more than 150 countries, policymakers have announced various measures to encounter the pandemic. However, equity market investors are skeptical about those measures and whether it can turn around the global economy. At this point, we can’t blame you if you have a thousand questions running through your head, as far as your investments are concerned. So here are some of the most asked questions during a stock market crash and their answers, to help you gain more clarity of the situation. Read On!
In this article
Why is the Market Down? Is This Temporary or Permanent?
It all started with the outbreak of Coronavirus. Starting from Wuhan in China, soon several countries came under the grip of the pandemic. Certainly, this global event has caused a huge strain on economies and negatively impacted investor sentiments. A lot of industries including tourism and aviation industries have been immensely impacted and benchmark indices have plunged to their multi-year lows.
“Is this stock market crash is temporary or permanent?”
While it is difficult to predict how long it would take the markets to stabilize at this point, we can take a cue from scenario markets falls in the past. For instance, take the 2008 market crash owing to the Mortgage Crisis in the USA. Back then, the Indian Nifty was impacted by more than 50% which is much less than the stock market crash 2020 at 30%.
The market was volatile due to which a number of investors had sold their portfolio but incurred losses afterward. On the other hand, investors who bought new stocks made the best out of in the next 2-3 years. So, it’s best to map to past events and wait for the market to recover.
Why are My Investments in Red?
A lot of retail investors wonder where they have gone wrong while choosing the securities and blame themselves for their tanked portfolio. A crash in the share market usually gulps the entire index by 30% which makes around 95%-98% companies vulnerable. It all boils down to the fact that your investments would be in red regardless of where you have invested. Certainly, such a situation demands patience because selling at this point means losses.
It’s good to be critical about your judgment when it comes to investing but think twice before selling out your substantial stocks or redeeming your mutual funds. Always keep in mind that the impact of such a share market crash is equal for all equity investors and redemption decisions taken under panic might hamper your long term wealth creation prospects. So what do you do? wait patiently for the markets to bounce back, simple.
What Should Investors Do Now?
This question entails three more questions within, viz.
Should I buy more?
Should I sell?
Will it be better if I hold my investments?
Let’s answer each one of these:
Should I buy more?
There is absolutely no harm in buying if you are getting shares of a fundamentally strong company at a reasonable price. However, one important point to jot down is never put a lumpsum amount in one go, instead, divide your ticket size into smaller amounts and then invest. In this way, you will be able to maintain a balance if the situation persists. .
Should I Sell My Investments?
Selling your investments during the stock market crash is a decision that should be taken after a lot of deliberation. Often it is seen that investors sell their shares in panic during these crashes and end up regretting later. However, in certain cases such as if a company you had invested in has its fundamentals compromised then, it is advisable to sell. Scrutinize each and every company meticulously and then conclude rather than panicking.
Would it Be Better if I hold My Investments?
A big yes to this! If you believe that you have invested in a stock with strong fundamentals and a promising growth potential then hold on to your investments for the long haul, instead of relinquishing them due to short term market volatility.
Where Should I Invest?
If you have some potential companies in mind which you were looking to buy before then there are high chances that you will get them at a comparatively lower rate. So, if you are getting a good company at a lower price value which aligns with your risk profile and investment objectives, then you should definitely go forward and buy it. But, always buy in a deferred way to steer clear of the market fall panic. Moreover, if you wish to invest in stocks – diversify your portfolio; Invest a little in each large-cap stocks, mid-cap stocks, and small-cap stocks.
What are Mistakes to Avoid during the Market Crash?
One of the biggest mistakes to avoid is redeeming your mutual funds or good stocks from your portfolio in haste. In most of the cases, it has led only to loss. Even if you see blaring headlines of ‘ Stock Market Crash Today’ in the news, there are no reasons to panic. Stick to your initial investment plan, know why you invested in the first place and keep a long term perspective.
What Can We Infer?
As an investor, you should always brace yourself for sudden volatility in the market. Just don’t sell your stocks in these situations without research as this can be an impediment to re-entering the market and buying again. As a result, you will end up losing more in the long run, if you miss vital market gains in the shorter term. When it comes to share market crash, one can never predict how long bear markets are going to last, so remain calm and have confidence in your judgment.
Disclaimer: The views expressed in this post are that of the author and not those of Groww.