What happens after a 10% market correction?
11 May 2022
Corrections are a normal part of the market cycle. A correction is generally defined as a 10% to 20% drop in value from a recent peak. In general, the Indian stock market experiences a correction when an economic shock or a major geopolitical or global economic event causes investors to pause, take a step back, and consider what is going on in the rest of the world. Corrections are typically short lived, and the market quickly recovers once positive triggers emerge.
The Nifty50 Index on the NSE is now trading near 16100, having fallen nearly 13.40 percent from a 52-week high of 18604. According to Warren Buffett, investors should be "fearful when others are greedy and greedy when others are fearful." The current market situation suggests investing with long term perceptive. We examined numerous scenarios over the last decade in which the nifty recovered with double-digit returns following such drops. This chart depicts how the Nifty50 index performed after 3 months following a 10-15% price correction. However, there are four exceptions where the market dropped more than 15% during 2012, 2015, 2016, and 2020, and it took more than three months to give a positive double digit rally.