Is it Time for the Market to EBB?

The street has fed some tasty appetizers to its investors. With the liquidity fueling the market and monsoon setting the fire, the street has been pretty warm lately. Nifty share price are floating near their one-year high are floating near their one-year high. After the 16% rally over past few months, is it time that the market retires for a while? After bearing the weight of strength in the domestic economy and copious liquidity flow from FIIs, it is reasonable for the street to take a pause.It’s time to pray, for the market to retreat, not crash but correction. The signs of the strength in the domestic economy are slowing. The commercial vehicle sale has just marginally gone up by 0.1% Year-on-Year, and the IIP growth in June had been just 2.1%. The time is ripe for the correction from the valuation point of view.Indian mutual funds are growing more robustly than those abroad. This indicates a lot of pent-up liquidity supporting the domestic street compared with perhaps other markets. That is why, precisely, market veterans are hoping for a good correction in the market. Moreover, the festival season is near, and almost 50% of the entire economic activity is focused on these three festive months.

Definition in a Nutshell:For those who have no clue about what is all the reference about, let’s take a little walk in the park. Market Correction is a pullback of the market. It is when the market declines 10% after its year high. The pullback is street’s natural phenomenon. The experienced investors often welcome the correction because it allows the market to consolidate before moving forward. A correction is more like a lion taking few steps back before going for the kill. Also, the retreat gives investors the opportunity to build positions for a long-term positive direction for the market.

Correction, not Crash:Remember, there is a thin line between the correction and the crash of the market. Correction is when the stocks drop 10% gradually, giving the investors time to adjust with the fall. But a crash is frightening. It is when the stock prices plummet more than 10% in just one day. The crash leads to the bear market, dropping by another 10% and leading to the decline of over 20%.The crash is a cruel cycle. Stocks are instruments for companies to get cash for growing their business. The drop in stock prices means less cash for corporations implying the decline in their ability to grow. Subsequently, to stay solvent, workers will be laid-off and in turn, the expenditure of public will decrease. This would mean lower demands and lower revenues and even more layoffs. The saga will continue, the economy will keep contracting resulting in recession.

Well begun is Half Done:The veterans have been advising to stay invested in the market. The trick is to know the best time to enter and exit the street. That’s why stop-loss is important. If the stop loss figure is too high, there is no point in initiating the trade at all. After a good entry has been made and an appropriate stop loss strategy has been made, it is important to put that into action and not just in the mind.Market correct is a good time to add stocks to your portfolio. When the market rallies after the correction, the portfolio will be rich with beautiful numbers on returns. But it is hard to say when the correction will turn in the crash. Hence, it is always safer to keep your portfolio diverse with a balanced mix of stocks, bonds, and commodities.

A writer by day and a passionate reader by night. Writing just doesn't fill my pocket but it also fills my heart. Passion for writing about new events & happenings is what soothes my mind & soul.