There has been a recent rise in volatility in both, US and Indian stock markets. Improvement in short-term liquidity has improved investor sentiments. This resulted in Nifty and SENSEX bounced more than 2% on 26 August 2019. However, it is feared that this rise is short-lived. The current economic slowdown in India due to both cyclical and structural conditions. Therefore, a sustainable market rally presently looks far-off. To navigate through these choppy markets, you need to know the following:
Related read: Invest in stocks the Mahi way
Eager to press the panic button? Not yet! Stock market volatility is a short-term phenomenon. The historical study of benchmark indices shows that markets march forward in the long run. Therefore, one must not panic and stay put.
Volatility is not just about downswings, it is also about upswings. Sometimes, stocks may experience short-term gains that might not be justified with reality. In a stock market correction, the price of the inflated stock falls around 10-15% from their 52 weeks high. There are two major reasons for market corrections viz. incessant investing around anticipated gains and profit booking. These corrections usually last for about 3-4 months. A sustainable market rally would not be affected by such corrections. This is a good time for buying new stocks.
Related read: 5 things to do when markets turn volatile
Stock prices reach bottom low! Time for couponing? When investors seek-out shares, whose prices have dropped drastically is called bottom fishing. These stocks are temporarily undervalued due to intrinsic or extrinsic factors. Warren Buffet had emphasized on a famous bottom fishing strategy called value investing. It is good for investors looking for a good bargain but is also risky especially when the prices fall to an irrational low.
Related Read: 5 tips to survive a stock market crash
In stock markets, short-term volatility is a norm. India VIX is an index that measures market volatility. Thus, it helps in quantifying the current market sentiments. A relatively benign VIX figure shows that there is a need for cautiousness in the stock market. Therefore, it is important to keep an eye on VIX figures while investing.
India VIX rose from 2.26% to 17.1% on 21st August 2019. The recent rise is experienced in anticipation of future market volatility, in the near term. A high VIX reading indicated a fearful market condition.
0 people liked this article.