Why are markets taking a nasty ‘U’ turn?

An investor has capital of Rs. 5 lacs. He goes to the bank and borrows Rs. 20 lacs. Now he has Rs. 25 lacs at his disposal. Let us say, he invests this amount where he earns 10% on the investment (10% of Rs. 25 lacs is Rs. 2.50 lacs). The profit of Rs. 2.50 lacs is 50% of the investor's own capital. Although the investment gave a return on 10% on the amount invested, due to leverage, the investor could earn 50% on his capital from the same investment option. And that is the power of leveraging. However, what happens if the money is invested in stock market, which is volatile by nature? Some times, the stock prices move up, but there are certain occasions when the direction changes. Let us assume in the same example that the investment depreciated by 10% instead of appreciating as before. Now the current value of the investment stands at Rs. 22.50 lacs, which is less by Rs. 2.50 lacs than the amount invested. However, out of this, Rs. 20 lacs belongs to the bank (or the lender) and hence, the investor, if he gets out of the market, would get only Rs. 2.50 lacs, which is 50% of his original investment. As seen here, leverage can work both ways.