Last week Sensex fell by 1939 points – one of the biggest falls in absolute terms, but under 4% – that is a big number, but not the biggest fall. When you think in percentage terms, this is really not much.

Last week Sensex fell by 1939 points – one of the biggest falls in absolute terms, but under 4% – that is a big number, but not the biggest fall. When you think in percentage terms, this is really not much.

Well, to be clear nobody, really nobody knows why the market went down, but there are many reasons that we will tell you –

  1. Interest rates in the US are inching up, and as the market acts in advance, markets decided that some correction is necessary.
  2. President Trump was an exception, the new President Biden has just started bombing Syria, and this will take Oil to at least US $ 80-90 soon. This means a lot of speculative money will go into buying oil futures – and money has to come by selling the existing equity shares, right?
  3. There is something called a carry trade – people borrow in USA to buy assets all over the world. Since the Indian markets were doing well, the money will book profits and leave India.
  4. There will anyway be some more selling Emerging Markets and buying developed markets – preparing for a post-Covid world.
  5. Interest rates in India is also going up – the 10 year G-sec is now at 6.24% p.a. – and this means some Indian investors too will sell Indian equity and put it in debt instruments.
  6. Real returns are negative in India, USA, and Germany and savers will protest and will not invest at low rates – forcing the borrowers to increase interest rates, and this will pull more money from equity markets to debt instruments.
  7. We all know that the equity markets have given sensational returns from March 2020, and hence some of us will take the froth from the market and invest it in debt instruments.
  8. If you have a leveraged position in the market – there are many people with a leveraged position – either you will sell or your lender (normally broker) will be forced to sell to square up your position. So this puts more pressure on the bulls, and prices go down.

So here are at least 8 reasons why the markets are down, and there could be another 80 because of which there is a downward pressure on the equity markets.

What is happening is not of such great importance – let us see what you should do if you are a long term investor.

First of all for most of us retail investors the change in the Sensex (or Nifty) should not matter at all. We do not invest in the Sensex – so we should see how our portfolio is doing. If we had started regular investing a few years earlier, we would not even been able to see the impact of a one-day fall. Like all seasoned investors you too could say “it was just a blip”. However, if you had started investing recently – (remember about 17,00,000 accounts were opened last month) you might get perturbed a little. Stay calm. Do nothing. Just go about your business of investing in a cool and calculated manner. I am not saying it is easy, but it has to be learnt slowly, and it will do you a lot of good.

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