Mar 20
Why are Stocks Tumbling? Is it Russo-Ukrainian War or Something much Deeper?- Let’s Take a Stock (of our investments)
Hi guys……extremely happy to be back with you all to discuss stock market investment and personal finance related subjects. Happy because it provides me with an opportunity to discuss something which I am really passionate about, at the same time, this also lets me contribute towards my mission of spreading financial awareness and in some sense repay my debt to my mentor, who guided me onto this path.
If you are a casual investor who takes advises from others or if you limit your readings to only kinetic actions happening in stock markets, probably you too must be wondering why such sudden trend reversal at stock markets world over? Back in October / November 2021, it looked as if nothing could go wrong ever and stocks will keep rising but then inevitable happened. In a steady slide since then, indices have slid down to 25% to 30% on various pretexts, one among them being the current raging war in Ukraine. Yes, armed conflicts…..sanctions…..trade wars do certainly affect specific sectors worldwide and may be the reason for few dependent economies to go in recession but they do not affect a large set of businesses worldwide such as FMCG, IT and manufacturing sectors. Then, why this generalised down trend across sectors and across global stock markets???????
The reason is same which propelled the stock market during Corona virus pandemic and now is the root cause for market correction across globe — and that is excess liquidity in the financial systems. If you recall, during pandemic times, most countries pumped trillions of dollars in their financial systems to boost their falling economies, of which a large chunk found its way to the stock market, propelling the stocks and indices sky high, breaking all previous records. This party was to last only as long as the excess liquidity remained, because it was literally funded by the excess money in the systems. Therefore, when US Feds announced in September 21 that they would be implementing measures in next six months to reduce the liquidity in the market in an effort to control the ever rising inflation, the writing was clear on the wall that the ballon has been punctured. But this was not alone, minutes of the December meeting of Feds which was published on 06 January this year, further reiterated and outlined their three pronged approach, which almost signalled the end of Bull run as each of the three actions listed below was to drag the indices down.
- Raising of the interest rates.
- Tapering down further procurement of assets
- Reducing assets in the balance sheets.
Why do I say this????? …….it’s again just pure data. If you look at the official NSE data from its website about money flow since September till today…..it is a staggering Rs 200,000 crores which have been pulled out of NSE by FIIs. The beginning started with the first announcement in September, when the investment houses and FIIs started pulling out their money from the market in anticipation and it almost lasted for six months till now. The situation looks even more grim now with US inflation hitting all time high. At such a time, it would not be less than a miracle to control inflation by fiscal means yet not plunging the economy in recession.
Should I be worried as an Investor? Certainly not……if you are disciplined and not speculative. Though the market has corrected a lot, most of the good stocks are still trading between 1.4 to 2 times of their intrinsic values and this may be an indication of market respecting quality stocks. The bottom line is, if you hold stocks of any company which is not in profit…..the stock will take more hits in coming times, but if you possess good quality stocks, hold on to them and acquire more, if available at discounted prices. Please be aware that the days of near 100% returns on almost every stock are long gone. Therefore, balance your greed to risk matrix - before you bite the bait now or in future.
Like always, I really enjoyed writing this post and I hope that, like always you will equally enjoy reading it too. However, I have been a little irregular in the past due to far too many commitments and my approaching final exams. Therefore, I have decided to take a short break till completion of my exams before I resume sharing my analyses and experiences as before. I am surely going to miss you all during this time, but I hope to be back as soon as possible.
Please do show your appreciation, which will help me to return sooner, by clicking the clap button and please do share this post with all your loved ones and friends to spread financial awareness. Hope to be back soon…………..
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