Market Correction Analysis: A Deeper Look into Recent Trends

Hello investors , exactly two months after the election results when the market tanked brutally,

there was again a sharp correction today on 5th of August where Nifty index tanked 2.7%, Nifty midcap is down 3.6%, and Nifty small cap is down 4.2%.

Such corrections always remind me of a quote that " Rome was not built in a day, but Hiroshima and Nagasaki were destroyed in a day ".

This is so true because the market takes a good time to generate returns, but corrections are very sharp that wipe out many days and weeks of gain in a single day.

Now the question is, what is the reason behind the brutal correction in the markets today? Is it a one-off event or is there more pain ahead for the Indian market?

So the answer for the first question is simple: this correction is due to weakness in the global market.

Actually, on Friday, the US job report for July month got published that has shown a sharp slowdown in US job growth with the unemployment rate at 4.3%.

The problem is that data says that hiring in the US has slowed down for the third straight month and this created a slowdown in the US economic growth.

However , the US stock market jumped in the last few months in anticipation of rate cuts.

So the US stock market has already priced in the rate cuts but in the latest meeting, the US Fed has kept the interest rate unchanged.

So no rate cuts followed with a sharp slowdown in US job growth created negative sentiments in the US market.

For instance, after a 22% jump, NASDAQ has already reduced 10% and that negativity has trickled down in every stock market of the world.

In fact, the Japanese stock market is facing an even more brutal correction.

Its index Nikkei 225 has tanked 12.5% in a single day today and nearly 25% correction in the last one month.

So in addition to a weak US market, Japan is also facing another problem: the currency Yen has appreciated against the US Dollar by 10% in the last 3 weeks.

The catch is that a lot of traders borrow money in Japan where they get the money at near 0% interest rate and then they invest that money in other markets like the US.

• Japan's bank has increased the interest rate to 0.25% after 2007 and Yen has appreciated against the dollar.
• So due to the sharp fall of the dollar against the Yen, traders had to cut down their trading position and book losses as now they also have to pay interest to the Japanese bank and that is also a reason for the fall in the global market, including us.

is it all in the Indian stock market or is there more pain ahead? So obviously, nobody can say anything with 100% confidence.

We would need to wait for a few days to watch the trend in the market, but all I can say is that there is an excellent opportunity created in the Indian market after two months of one-way rally post-election.

Markets were overheated and this correction is important to keep the valuation fairly valued in the market.

I think another 8-9% correction at the index level would generate a good value for investors.

Many individual stocks have already fallen between 5 to 15% and if this trend continues for the next few days, there will be an excellent buying opportunity.

As a long-term investor, I always look at these corrections as an opportunity rather than panic because these corrections only create buying opportunities.

For now, all I would say is there's no need to panic. Markets never give linear returns. In the last one year, there's been a one-way rally with nearly 40-50% kind of return, so a 10-15% correction is always healthy for the market.

I believe that structurally, the story for India is 100% intact, so always try to look at the bigger picture. Yes, there are a few sectors and individual stocks that are extremely overheated that can be avoided, so keep an eye on valuation as compared to growth to identify good opportunities.

The only message I want to pass on is if you want to create wealth in the stock market, it can be done via investing in fundamentally strong companies and more importantly, remain invested, especially during the difficult time.

The market would continue to test your patience and conviction and only those who can hold on to their nerves will emerge as winners.

In conclusion, the recent market correction offers a critical opportunity for long-term investors to reassess and capitalize on undervalued stocks. While short-term volatility can be unsettling, it's essential to maintain a broader perspective and focus on the fundamentals of strong companies. Remember, market corrections are a natural part of the investment journey and can create significant buying opportunities. By staying informed, patient, and strategic, investors can navigate these turbulent times and emerge stronger.

I will really appreciate if you share your valuable thought and experiences with me!

"The stock market is a device for transferring money from the impatient to the patient." Warren Buffett Sir

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