Factors Influence Market Trends
Created on 02 Aug 2019
Wraps up in 2 Min
Read by 1.8k people
Updated on 19 Oct 2019
There is a massive panic surrounded the markets, where Nifty fell from a record high of 12,003 (on June 3) to 10,990 plunging nearly 9% in the span of 2 months, majorly dragged by auto, banking & financials, energy, infra, and metals stocks.
Mid-capsand small caps stocks have gone through a free fall, which is more exhaustive when compared to large caps.
So much is the agony in the mid-cap sector that since January 2018, investors have lost more than ₹28 trillion in all the corrected stocks. The BSE MidCap and the BSE Small-capindices lost 21% and 31%, respectively, since January 2018. More than 1,976 stocks traded on BSE have dropped since January - that’s 86% of all traded stocks. Chances are, if you owned 20 stocks, 17 of them would have suffered losses.
One of the reasons for Midcap& Small cap downturn:
- Reclassification of mutual funds by SEBI: In October 2017, the regulator identified portfolio characteristics within the categories. So within equity funds, large-cap funds can invest in the top 100 listed companies based on the average full market capitalization of the previous six months, mid-cap funds can invest in the 101st to 250th company, and small-cap funds in the 251st company onwards. The equity mutual fund scheme, i.e., a large-cap scheme should have minimum 80% investment in large caps, and a mid-cap fund should have at least 65% of its assets in mid-caps. This led to mutual funds churning their portfolio, resulting in several mid-cap stocks exiting the portfolio.
The major reasons for recent market debacle are:
- Weak economic growth, weak corporate earnings growth environment, and weak monsoon. A slowing economy, a fall in demand in certain sectors, and geopolitical tensions (US-china trade war) didn't help the market sentiment either.
- In the Interim Budget, thetax proposals to increase the surcharge on super-rich has created disappointment among FII's, which was the main reason behind such a fall, which made foreign investors to sell more than Rs 11,000 crore worth of shares after a denial to tweak surcharge on super-rich by the government.
- The tweets of Donald.J.Trump on US-China trade war (imposing tariffs) is also a factor which impacts not only US markets but also global markets.
- The Fed Chairman Jerome Powell cited global weakness, bubbling trade tensions, and a desire to boost too-low inflation in explaining the central bank's decision to lower borrowing costs for the first time since 2008. Especially this is one of the reasons for the major fall in the market (Aug 01).
As an investor what, you should do
• Be patient, as wealth can’t be generated in a single day.
• If you enough liquidity (or) surplus cash, try to Average your cost.
• Exit from bad companies, fundamentally unsound companies.
• Diversify your portfolio into other asset classes.
• Don’t check the market on a daily basis; keep invested.
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