Decoding market corrections: A deeper look at time and price factors
However, to capitalise on these superior returns, equity investors must navigate through market corrections, which are generally unwelcome, whether they are minor or substantial. Yet, when approached strategically, these corrections can offer valuable opportunities to enhance long-term investment gains.
Analysing data spanning the entire 21st century, which encompasses the past 23 years, we observe that major stock market indices such as the Sensex and Nifty 50 have experienced a minimum 10% correction on an annual basis (with the exception of CY2021), a roughly 15% correction approximately every 3 years, and a more significant correction ranging from 30-40% occurring once every 10 years.
Sustained negative returns over two consecutive years are very rare.
Furthermore, investors must also be prepared for time corrections, where the market may take an average of around 30 months over the past decade to recover and reach previous peak levels.
India, in particular, has experienced relatively few country-specific corrections.
To illustrate this point, let’s examine two instances: The global financial crisis (GFC) of 2008 and the COVID-19 crisis of 2020.
Both of these periods saw the headline market index decline by more than 35%.
While it took nearly 30 months for the market to recover to its previous high during the GFC, the same feat was achieved in less than 12 months during the COVID-19 period.
In hindsight, such corrections have proven to be opportune for long-term investments. However, when markets are in the midst of corrections and stock prices are consistently falling, it becomes challenging to maintain an optimistic outlook for the future.
It’s equally daunting to commit to investing when sentiment is
