{"id":20937,"date":"2021-04-21T15:36:21","date_gmt":"2021-04-21T10:06:21","guid":{"rendered":"https:\/\/fundsindia.com\/blog\/?p=20937"},"modified":"2021-05-18T14:59:31","modified_gmt":"2021-05-18T09:29:31","slug":"is-a-market-correction-coming","status":"publish","type":"post","link":"https:\/\/www.fundsindia.com\/blog\/mf-research\/is-a-market-correction-coming\/20937","title":{"rendered":"Is a Market Correction Coming?"},"content":{"rendered":"\n
\"\"<\/a><\/figure>\n\n\n\n

The number of Covid cases in recent times has been on the rise…<\/strong><\/p>\n\n\n\n

\"\"
Source: JHU CSSE COVID-19 Data<\/em><\/figcaption><\/figure><\/div>\n\n\n\n

Equity markets have become more volatile on concerns of the 2nd wave of Covid impacting India\u2019s economic recovery…<\/strong><\/p>\n\n\n\n

\"\"<\/figure><\/div>\n\n\n\n

The media is busy fighting the who-makes-the-scariest-headlines competition…<\/strong><\/p>\n\n\n\n

\"\"<\/figure><\/div>\n\n\n\n
\"\"
Source : google.com<\/figcaption><\/figure><\/div>\n\n\n\n

Now, when all this happens in tandem, we get a nagging thought… <\/p>\n\n\n\n

Is this the start of a market correction?<\/strong><\/p>\n\n\n\n

Get a cup of coffee and let us deep dive to figure out the answer…<\/p>\n\n\n\n

What is supposed to be \u2018Normal\u2019 in Equities?<\/span><\/strong><\/h3>\n\n\n\n

Equity Markets are Volatile. <\/p>\n\n\n\n

But simply stating this statement is akin to me watching a Korean movie without subtitles. While broadly I can make out what is happening in the movie, I have no clue on the specifics.<\/p>\n\n\n\n

When someone says \u201cEquity markets are volatile\u201d, what we really hear is \u201cThey go up and down\u201d. We are happy with the \u2018up\u2019 part – after all, that is why we invest in equities and nothing to complain about. <\/p>\n\n\n\n

But the \u2018down\u2019 part is where the problem lies. The vague and fancy term VOLATILITY doesn\u2019t tell us<\/strong> what degree of \u2018down\u2019 is supposed to be \u2018normal\u2019 vs \u2018not-so-normal\u2019. <\/strong><\/p>\n\n\n\n

So this leads us to another simple question –<\/p>\n\n\n\n

What degree of MARKET FALL is supposed to be NORMAL? <\/strong><\/p>\n\n\n\n

The simplest way to understand this is to refer to the past behavior of equity markets. <\/p>\n\n\n\n

So, we went back as long as 40+ years<\/strong> (from the time Sensex was launched) and decided to check for the largest fall recorded during each year<\/strong> i.e the fall from the highest index value to the lowest index value during the year. <\/p>\n\n\n\n

Here is what we found…<\/p>\n\n\n\n

\"\"\/<\/figure><\/div>\n\n\n\n

Did you notice something strange…<\/p>\n\n\n\n

Equity markets had a fall EACH & EVERY YEAR!<\/span><\/strong>

You read it right \u2013 EACH & EVERY YEAR. There was not a single year where the markets did not have a decline.<\/strong><\/p>\n\n\n\n

Let us add more context to the numbers…<\/p>\n\n\n\n