The Indian Markets in July 2019 faced the hardest fall in 17 years with both major benchmark indices Sensex and Nifty falling 4.86% and 5.68% respectively. In 2002, the Sensex dropped close to 8% whereas the Nifty had fallen nearly 9.3% as a way of Market Correction.
The markets continued to fall on 01 August 2019, as the BSE Sensex fell 462.80 points (1.23%) to 37,018.32 and the NSE Nifty tumbled 138.00 points (1.24%) to 10,980.
Let’s look at some of the factors that pulled the domestic benchmark indices lower:
- US Fed Rate Cut
The US Federal Reserve Chairman, Jerome Powell, announced that the policy rate will be cut by 25 basis points. He characterized this rate cut as a mid-cycle adjustment to policy. The Fed rate cut comes after nearly 11 years and the reason for the same is to insulate the US economy from a global slowdown as well as to ease escalating trade tensions.
Powell further went on to mention that this rate cut is not the beginning of a lengthy series of rate cuts which left investors with more to be desired.
- Foreign Outflows
The recent market-unfriendly Budget announcements and mixed Corporate Earnings have made India vulnerable to foreign outflows. Data suggests Foreign Portfolio Investors (FPI) have pulled out over Rs. 11,000 crores worth of Investments from the Indian Market in the month of July.
- Bear Market here to stay?
The sentiment of the market has been relatively poor of late, which is partly reflective of the investors’ concerns over earnings. For every stock that rose on the BSE, there were three that fell on Thursday. This suggests that the bears are driving the market and the pain could be here to stay.
For an investor to evaluate their investments effectively, there must be a crisis. When things go as expected, everyone appears to do well. But only when there is a crisis or multiple crises that hit, can one truly discern the good from the bad. In conclusion, investors should welcome crises and problems in sectors and companies that they are invested in. When a crisis hits, it isn’t just a test but it a mechanism of evolutionary selection. When a dud business fails, it clears the way for better ones. Failure of a sector or a company is always a better indicator for investors rather than success.
Markets are News Driven in the short term, Corporate Earnings driven in the medium term, and Economic Growth Driven in the long term.
Investing, in the long run, will have you see periods of high growth, low or no returns as well as negative returns. One can generate long term wealth by going through the various investment periods. Timing the market kills the overall return of the portfolio.
Despite the recent market conditions, as a long-term investor, you must continue to stick to your investment plan. To better understand how the market’s performance affects your portfolio, contact one of our SEBI Registered Investment Advisors.