Worried about 2% single day fall in indices? Be ready for more or leave!

Published on / By M. Pattabiraman Twitter: @pattufreefincal / 2 Comments

Published: February 7, 2018 at 10:30 am

Last Updated on December 18, 2021

On Feb 2nd the day after the budget, the Sensex fell by about 2%. If you this is a “big fall” or if you are worried, you only have two choices: get used to it and be ready for more or leave and head to fixed income. The following charts were published on Mar 11, 2015, after a similar 2% fall on Mar 9th, 2015. Nothing has changed!

Looking at investor reactions, I am now confident that if there is a sustained fall, most of them will not add more to equity. Good. Only the fittest survive.

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On Monday last, most Indian stock indices ‘crashed’ by about 2%. Immediately the media  wrote columns as to why this occurred.  The next day there were hand-holding articles as to why one should not be scared of such market movements. A case of, ‘pinch the baby and rock the cradle’.

Here is a series of Nifty graphs in this regard.

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    A single-day fall of 7% or more

    nifty-fall2

    We have had a 12% fall and ~ 8% fall in the middle of a bull run (Jan 2004) and another ~8% fall in late 1998.

    So, the next time there is such a single day fall, can we assume the market has crashed and that we are heading towards a bear market?

    A single-day fall of 5% or more

    nifty-fall-1

    Should be cut our losses and exit when there is a 5% or higher fall?

    A single-day fall of 2% or more

    nifty-fall3

    A single-day fall of 2-3%

    nifty-fall4

    Does this put Mondays ‘crash’ (rightmost red dot) in perspective?

    If it does, keep calm and MDBSC* on

    If it does not, if you feel compelled to fret over the reasons for the fall, if you need hand-holding and reassurances that ‘we are still in a bull market’ and that ‘all will be will’, get out of equity today and stick to fixed-income products.

    ‘Wealth creation’ is not for the faint hearted.

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      Pattabiraman editor freefincalDr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over nine years of experience publishing news analysis, research and financial product development. Connect with him via Twitter or Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free investment advice.
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