The March mayhem that saw domestic benchmark indices tank 24% in not behind investors despite a decent recovery in the month of April. However, the coming few months could be crucial for investors.
The March mayhem that saw domestic benchmark indices tank 24% in not behind investors despite a decent recovery in the month of April. The bloodbath of March saw Dalal Street investors lose over Rs 32 lakh crore but the smart recovery in April, where Nifty 50 recovered 15%, got investors back in the game. However, this is just the beginning of the rebound that is yet to come. Analysing past sharp corrections of share markets, brokerage and research firm Motilal Oswal has concluded that markets have usually rebounded the most in 3-6 months post sharp corrections, making the coming few months crucial for investors who have suffered heavy losses so far this year.
In a research report Motilal Oswal noted that even during the financial crisis of 2008, where equity markets tanked 60%, the correction in the first month was close to 9% and 6% in the three months since reaching the trough. However, in six months post the bottom, share markets had registered a 38% jump. In 2006 when markets saw a sharp 30% decline between the months of May and June, the rebound registered in the initial month was 19% but six months down the line markets had grown 46%.
Since the beginning of the century, the brokerage firm analysed nine instances when the equity markets corrected sharply in a matter of months. In all the instances, apart from the tech meltdown of 2000, markets delivered a strong rebound in the six months post the bottom. The most recent correction of 2018, when share markets tanked 15% between August and October, the gains registered were 17% in the six months post reaching the trough.
Motilal Oswal in the research report also noted that the recent decline in share markets has shrunk the number of companies with market capitalization above $1 billion by one-third. “The number stands at 234, lower than the number in 2007. Currency depreciation over the years has also played a role,” the report said. In 2007, around 240 companies had a market capitalization of over $1 billion. The current turmoil has not just hindered with the valuations but also seen market-cap to GDP ratio decline to worst levels since the financial crisis.