Investors have seen similar situations in the past, and the big takeaway is investing in this market in a staggered way, will create wealth
Indian market is already in a bear phase, down more than 20 percent from the recent highs. Historical data of the past 20 years suggests markets usually create a bottom after falling around 39 percent on average.
The Nifty50 has declined more than 30 percent in the last three months.
In the last 2 decades, there have been six instances when the market corrected by 25 percent or more, ICICIdirect said in a report.
Out of 6, in four instances correction was more than 30%. In all four instances, one year and two year forward returns for Nifty have been positive, the report added.
Despite a coordinated response from global central bankers to stem the slowdown and avoid a possible recession, there is a risk-off sentiment in equity markets across the globe which is pushing money out of riskier assets to safe-havens.
Coronavirus scare has grown multi-fold post its spread across the key economic zone of Europe and the US. The number of affected cases in India is not significant but they are rising which does pose a challenge for the government.
The outbreak of the coronavirus will definitely have an overall impact on global as well as Indian GDP growth in the interim. But, investors have seen a similar situation in the past, and the big takeaway is investing in this market in a staggered way, will create wealth.
“Historically, it has been seen that market recovery in such a case is usually sharp and quick and precedes the economic growth rebound. Therefore, we see the current correction as a buying opportunity for the investors who should utilise the declines to lap up good businesses which have comfortable leverage, strong return ratios and enjoy leadership position,” ICICIdirect said in a report.
“The allocation, however, can either be made in staggered or in lump sum, depending on investor’s risk appetite,” the report added.
The last major correction which lasted about 10 months was seen in the market back in 2008 when Nifty lost more than 60 percent of its value.
The fall which started from January and lasted till October gave long-term investors a good buying opportunity because the rally was fierce in the next 1 year as the index rose more than 100 percent.
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