The Sensex dropped by over 2,500 points last week after months of minor drops and quick recovery. And it’s high time we talk about the market correction. Yes, it looks scary, especially after what happened last year. The scars of the 2020 market crash are still flashing over the investing community’s heads. But in reality, the factors are different this time. The new COVID-19 variant and the rise in inflation in the US are making the market nervous, leading FPIs to pull their funds. The question is now, how bad can it get?
What’s Happening?
The entire world is nervous about the rising COVID-19 cases in Europe and other geographies. After what happened in 2020, investors don’t want to make the same mistake twice and let their money go into the drain. Besides, the US is battling inflation and is expected to wrap up its stimulus programme. This was the last thing that the foreign portfolio investors (FPIs) needed, and resultantly emerging markets are getting affected. Over the last three trading sessions, FPIs have pulled out a net of Rs 14,700 crore from the Indian stocks.
Scope For A Brighter Future?
Inflation remains a broader topic of discussion in India as well. However, it’s easing as the fuel prices decreased slightly. On the other hand, the RBI seems to not ride the interest rate hike wagon so soon. Despite all the negative news looming around, it’s important to know that the domestic economic fundamentals remain intact. Analysts have said that the GDP has reached its 2019 level. Even though India continues to suffer on other fronts, the market can pick itself up if the COVID-19 virus doesn’t go on mutating.
Why Should It Bother You?
The market rally post-Covid was driven by liquidity and not economic growth. If FPIs are not convinced to pump in money in the Indian market, the stocks are going to witness a dry spell. The IPOs, to a certain extent, have also caused damage, in the sense that they drained the liquidity too.
As per Prime Database, IPOs have raised funds of over Rs 1.03 lakh crore. Moreover, Paytm’s listing fiasco has terrified other businesses, which is another bottleneck.
What Lies Ahead?
A market correction is on the cards, but a market crash seems a vague reality. Panic selling is not the solution to combat the bear market. It’s better to restructure your portfolio and add in new companies that are now cheaply valued. While others get nervous, the smart investors approach the negative market sentiment with a different perspective. For them, everything appears to be ‘on sale’, and they use their funds to buy stocks at a cheap rate.
