Explained: After Friday’s crash, what’s in store for markets, and what should you do?

The benchmark indices on BSE and NSE fell sharply by over 2 percent on Friday as concerns rose over the Covid variant. There was anxiety around the US Federal Reserve, which is likely to end its stimulus program and raise interest rates earlier than expected in the wake of increase in inflation. These factors led to a sharp outflow of funds from the Indian stock markets, which resulted in the fall in the indices.

How much have they fallen?

While Sensex fell above 1,100 points to trade at 57,650 levels, the broader Nifty lost nearly 350 points to trade to 17,190 on Friday. This was second time this week that the leading indices have lost almost two per cent. This week itself, Sensex has lost about 2,100 points or 3.5 percent, and since its highs on October 19, 2021, it has dropped about 4,700 points or 7.5 percent.

Why does it fall?

Markets are currently burdened by various factors. Whose increasing Covid cases in Europe and other geographies and its impact on economic recovery is a factor raised by a new concern over new Covid variant strain in South Africa new concerns in India and abroad and has again disturbed the markets.

Moreover, rising inflation in the US and expectations that the US Federal Reserve is in favor of faster-than-expected downsizing of its stimulus program and earlier than expected rate hikes are another factor affecting the markets in emerging economies.

If the US picks up the pace of ending its stimulus program and starts raising prices earlier than expected, it would lead to an outflow of funds from emerging economies, including India, which would affect stock markets.

Over the last three trading sessions, FPIs have drawn a net of Rs 14,700 crore from Indian equities, thereby resulting in the sharp fall in indices.

Will the weakness continue?

While the broad domestic economic fundamentals remain intact and markets may rise in the medium to long term, they are expected to remain under pressure in the coming weeks due to the above factors. If expensive valuations were a concern for domestic markets, new increases in Covid cases across Europe, a new Covid tribe in South Africa and its possible impact on the pace of the global economic recovery are weighing on investor sentiment for now. Rising inflation across several economies around the world and the impact of the proposed phasing out of asset purchases from the US Fed are other factors expected to keep markets under pressure so far.

What should investors do?

Experts say the current decline in markets driven by short-term concerns is something that should not bother investors too much. Market participants say that as the domestic economic recovery remains on track and the vaccination rate in India is good, the markets should reach new heights going forward. They say these declines should be seen as investment entry points by investors who are underweight stocks. It is also important to note that long-term investors should not sell their holdings in a panic, but only do so if their investment goals have been reached and they need funds.

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