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4 reasons why you should not be scared of current market volatility
No one likes losing money. The fear of loss keeps many people away from volatile financial markets. The sharp market swings are exactly what perhaps bad dreams are made of. It is but natural that many would choose to stay away from the stock market.
However, the current market situation may not be all that bad. Here are four reasons why you should not let the current market volatility hold you back:
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It's not India, it's the world:
Back in May 2013, the US Federal Reserve announced a rollback of its quantitative easing programme, through which it bought bonds and injected money into the system. Indian markets and the rupee crashed along with the rest of the markets. Yet, it was the worst affected. In August, world stock markets crashed once again after China devalued its currency. This time, however, India was not the worst affected. In 2013, India's underlying fundamentals were poor-growth had slowed to sub-5% levels; current account deficit was at a decade high; bad loans were piling on for banks; demand fell for goods and services, and lastly, inflation was in double-digits. This time, however, India is one of the countries with a stronger footing. So, it is safe to say this bout of market volatility is because of problems that affect other countries, not the world.
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EPFs going to invest:
Recently, the government allowed the Employees' Provident Fund Organization (EPFO) to invest 5-15% of their funds in stocks. This means the EPFO is going to start buying stocks worth (sentence is incomplete). It currently has a corpus of Rs 6 lakh crore. Of this, it plans to invest Rs 5,000 crore in stocks in FY16. This could further increase by 5% slowly over time. Any increase in buying always leads to a rise in stock prices. So, the EPFO's investment could help negate any selling by foreign investors. This is good for the stock market in the long run.
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Company executives are buying:
Every owner and senior executive of listed companies has to notify the stock market if they buy or sell their company's shares. Investors can consider promoter or company executive actions of buying and selling stock as a lead indicator. So, if they resort to buying shares of their company when markets fall, it could imply that the valuation is cheaper than before. And this is what happened in the latest market fall. Executives of over a hundred companies bought their shares, which became cheap after the market crash. This includes big names like Axis Bank, Hindustan Unilever and HDFC, according to a report by Economic Times. This means they are positive about the company's future.
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Ride the tide; buy at lows:
Almost all experts are positive about the Indian economy. Even top credit ratings agencies like Moody's and S&P are positive about India. At the same time, they downgraded Brazil to 'junk' status. This means, there are companies worth buying. Remember, you will make the most profits only if you buy stocks cheap. More often than not, goods stocks are available cheap during market falls. If you are a long-term investor, such falls can be a good opportunity to buy at lows.
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35.57
The National Stock Exchange (NSE) has an index called 'IndiaVIX'. This measures the volatility in the markets. It is often called the 'fear gauge'. A rise in the VIX almost always comes hand in hand with a fall in the markets. Recently, the VIX hit a 52-week high of 35.57. This was on August 25, 2015. Just a day prior, the Nifty fell by 5.9% or 490 points.
