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Business News/ Markets / Stock Markets/  How new investors can navigate share market corrections?

The prospect of investing in the stock market can hold great promise for those seeking financial growth and security over time. With India's growing economy presenting new opportunities every day, many savvy investors are looking to capitalize on this trend by adding equities to their portfolios. However, it is important that they don't overlook one key aspect- managing through inevitable market corrections that occur during an upward trend in pricing. A correction refers to when stocks sharply drop by at least 10%, which could cause new investors facing this situation challenges if they're unfamiliar with how up-and-down markets work. The causes for these dips differ but often include variations tied with economic indicators and global tension between countries. To help better navigate these times as an investor here are some tips detailed below which are suggested by Sooraj Singh Gurjar Founder and Managing Director, Get Together Finance (GTF).

Understanding Market Corrections

Understanding what market corrections are and why they occur represents the initial step toward overcoming them. Market corrections are indeed a naturally occurring element of the stock market process and occur when stock prices fall temporarily. Economic downturns, political turmoil, and global events can all contribute to this drop.

It is vital to distinguish between market corrections and market collapses. A market collapse is defined as a rapid and significant decline in stock values of at minimum 20%, and the market might take years to recover after a crash. Market corrections, on the contrary, are often brief, with the market recovering within a couple of months.

Staying Calm during Market Corrections

Panic trading is one of the most common blunders rookie investors make amid market drops. When stock prices begin to fall, it's only natural to become concerned and desire to sell your investments in order to avoid more losses. This, however, is rarely the best option.

In reality, selling in a huff can sometimes result in larger losses since you may wind up offering your stocks for less than you paid for them. Instead, it is critical to remain cool and avoid making rash judgements. Keep in mind that market dips are generally just brief, and the market will eventually rebound.

Diversifying Your Portfolio

Diversifying your portfolio is another method to weather market downturns. Diversification is the practise of investing in a range of stocks, bonds, and various other assets in order to spread your risk. You may decrease your exposure to almost any one stock or industry by diversifying your portfolio.

If you solely invest in technology companies, for example, and the tech industry undergoes a market downturn, you might suffer big losses. Even so, if you're holding a diverse portfolio with equities from different sectors, your losses could be fewer.

Investing in the Long Term

When looking at investing in the stock market from a practical standpoint, it is paramount not to lose sight of how imperative thinking about long-term goals truly enduring truth regarding markets is that while tumultuous times are undoubtedly uncomfortable for many savvy investors, it is nevertheless more often than not wise not make rash decisions. With time, historical data shows that the market will likely recover.

By adopting a long-term perspective, you stand to ride out potential volatility and enjoy steady gains over time. A hypothetical situation to illustrate this: if you invested rs.10k in nifty50 just before the 2008 market crash and held onto it until 2018, you would have seen your initial investment reach almost rs.1 lakhs in value despite the earlier trouble.

Here are a couple examples of market corrections in India:

1. During the 2008 global financial crisis, the Sensex plummeted from a peak of 21,206 in January 2008 to a low of 8,047 in March 2009, a more than 60% drop.

2. Due to fears about inflation, rising interest rates, and global economic instability, the Sensex plummeted more than 20% from its peak in November in 2011.

3. In the first quarter of 2016, the Nifty and Sensex both plunged more than 20% from their 2015 highs, owing to a slowing Chinese economy and declining commodity prices.

4. The worldwide COVID-19 epidemic caused a significant fall in the Indian stock market in March 2020. The Nifty and Sensex both fell by more than 35% from their highs in January, before beginning a gradual recovery later in the year.

It's important to note that corrections are a normal part of the market cycle and that past performance is not necessarily indicative of future results.

So we can conclude that market corrections can be a challenging experience for new investors, but they are a natural part of the stock market cycle. By understanding market corrections, staying calm, diversifying your portfolio, and investing for the long term, you can overcome market corrections and benefit from the market's long-term growth, said Sooraj Singh Gurjar.


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Vipul Das
Vipul Das is a Digital Business Content Producer at Livemint. He previously worked for (OneIndia News) and has over 5 years of expertise in the finance and business sector. Stocks, mutual funds, personal finance, tax, and banking are among his specialties, and he is a professional in industry research and business reporting. He received his bachelor's degree from Dr. CV Raman University and also have completed Diploma in Journalism and Mass Communication (DJMC).
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Updated: 01 Jun 2023, 12:07 PM IST
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