Corona Carnage in Stock Markets: Is it a threat or opportunity for investors?

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Updated: March 15, 2020 3:28:50 PM

As global markets started falling, the Bombay Stock Exchange sensitive index – BSE Sensex – also fell over 7800 points or about 18.71 per cent in two months.

Coronavirus Outbreak, COVID-19, stock markets, BSE Sensex, NSE Nifty 50, market volatility, CAGR, Sars virus, Bird Flu, Avian Influenza virus, Ebola virusStock markets don’t rise in a linear way as volatility is a characteristic of it.

Since January 14, 2020, when China started taking actions after it came to light that Coronavirus spreads from human to human, equity markets have become jittery worldwide as economic activities dipped due to restrictions on mass gathering that hit factory productions as well as the travel and hospitality industry due to low tourist footfalls.

As global markets started falling, the Bombay Stock Exchange sensitive index – BSE Sensex – also fell over 7800 points or about 18.71 per cent in two months, while the National Stock Exchange sensitive index – Nifty 50 – fell by 19.47 per cent during the period.

Now the question is – is the dip a threat to the wealth creation process of investors or is it an opportunity to invest more?

Stock markets don’t rise in a linear way as volatility is a characteristic of it, which makes returns fluctuating in short run and gradually moving up in the long run.

If look at the history of Sensex, dips in BSE sensitive index are temporary and each dip provides investors the opportunity to enter the market and earn a higher return. Moreover, the higher the fluctuations, the higher chances of getting better returns.

For example, in 1992, Sensex moved down by about 49 per cent over a year period and then bounced back about 117.57 per cent in 1 year 5 months.

In 1996, the index fell by about 30.21 per cent in about 6 months and recovered by around 55.6 per cent in about 8 months.

Similarly, in 2000, the Sensex slipped around 52.64 per cent over 1 year 7 month period and then climbed up by around 112.42 per cent in about 2 years 5 months time.

In 2003, when the SARS virus hit India during the January – March period, Sensex fell by about 10.7 per cent in 3 months and then bounced back by about 83.38 per cent in a year.

In the next year when Bird Flu or Avian Influenza virus became a cause of concern in India during the January – August, 2004 period, the BSE sensitive index dipped by around 12.23 per cent in about 7 months and then moved up by around 50.33 per cent in one year.

Going by its fluctuating nature, the Sensex registered a fall of about 18.45 per cent in just about 2 months in 2006 and then recovered by around 48.2 per cent in 8 months.

Likewise, in the very next year, the index plunged by about 11.37 per cent within a span of just about 1 month and then bounced back by around 56.81 per cent in about 9 months by December, 2007.

Soon after touching a high of over 20,000 points in December, 2007, the Sensex resumed its downward journey and moved down by as much as around 56 per cent in a period of about 1 year 2 months and moved up by around 126.8 per cent in about 1 year 8 months.

Amid its volatile journey, Ebola virus created some concern in the period of December 2013 to February 2014, and caused a dip of around 1.58 per cent in 3 months, only to move up by around 39 per cent in about next 1 year.

After about 1 year, during November, 2015 – February, 2016, Zika virus added to market turmoil, pushing the Sensex down by about 13.14 per cent in just about 4 months and then recovered by around 24.14 per cent in a year’s time.

In 2016, the index again went down by around 9.16 per cent in about 3 months and then moved up by around 14.08 per cent in about 4 months.

The year 2018 was a struggling year for Sensex, as the index fell by about 9.58 per cent in the first 2 months of the year and then slightly recovered by around 9.01 per cent in about the next 2 months, only to fall again by as much as 13.72 per cent in August – October, 2018 period and then moved up by around 17.36 per cent in about the next 6 months.

The index again went down by around 7.59 per cent in about 3 months in 2019 and then recovered by around 13.57 per cent to cross over 40,000 mark in December 2019.

In fact stocks move up and down every moment during trading hours and numerous number of times in a single day. For example on March 13, 2020, the Sensex touched a low of 29388.97 points about 10.34 per cent down from the previous close of 32778.14 points and also touched a high of 34769.48 points, about 18.01 per cent up from the days low of 29388.97 points.

Although, volatility is a basic characteristic of equity investment, during any crisis, it is quite surprising to see the knee jerk reaction of the markets and plummeting the markets to new bottoms as if there is no tomorrow.

While these crises are real and it impacts the world economy and does damage to several people, but historically, such crisis haven’t lasted long as the developed world is competent enough to come up with solutions to address these.

Despite the fact that it’s hard to predict the magnitude and impact of Coronavirus on economy, but it is certain that the markets will bounce back soon the crisis gets over.

With an average annual return (CAGR) of around 15 per cent, by growing from 100 points in 1979 to over 41,000 points in 2019, Sensex has proven time and again that corrections are temporary, but growth is permanent.

So, it is an opportunity to invest more, and if you are scared to put more money, at least stay invested and don’t stop your investments through ongoing systematic investment plans (SIPs).

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