InvestorQ : Is it essential for the markets to take the Sensex fall more seriously or is it normally volatility in the market ahead of any big event?
Niti Shenoi made post

Is it essential for the markets to take the Sensex fall more seriously or is it normally volatility in the market ahead of any big event?

Answer
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Archita Jajjoo answered.
8 months ago


The correction in the Sensex between 20 and 22 of January was quite sharp with the Sensex losing nearly 820 points in the first 3 days. The fall was significant for two reasons. Firstly, such sharp falls are not seen in the midst of a pre-budget rally. Secondly, the fall in Sensex happened with a sharp spike in the VIX. Apart from the earnings and the budget concerns, there is the added fear over the Chinese virus strain and also the valuation fatigue at higher levels. Let me just talk about the two issues here.

Firstly, the Chinese virus has spooked both the Indian and the global markets. Markets across Asia have been worried about the rapid spread of the Chinese corona virus. It has already resulted in over 60 deaths and affected lakhs. The last time such a pandemic hit Asia in the form of the SARS virus was in 2003. That had led to serious fall in demand and growth across Asia. With China central to Asian and global growth, the impact could be magnified this time around if the demand for goods really compresses in a significant manner.

Secondly, you need to accept that valuation is always problem if there is no corresponding growth as it leads to valuation fatigue. Today, there is real valuation fatigue in the market and it needs solid reasons to move up from these levels. The markets are close to its peak and so are the valuations compared to historical mean in the market. The assumption was that growth would catch up but there are hardly any signs. The growth downgrade by IMF to 4.8% underlines that the problem is more structural and less cyclical! Unless GDP growth picks up to above 6% and corporate top-lines also start showing growth, it will be really hard to justify current valuations. The fall in Sensex is largely reflective that there is a real problem on hand