Over the past few months, there has been a significant decline in key equity indices, with the Nifty50 experiencing a sharp drop of around 2,000 points from its peak of 18,887 in December '22. On 16th March, the index fell below the 17,000-mark, marking its lowest point since 13th October last year. The decline in the market has been largely attributed to the selling pressure exerted by Foreign Portfolio Investors (FPIs), who have sold $4.3 billion of Indian equities in the first two months of 2023. In contrast, domestic investors have stepped in as buyers to try and offset the selling pressure.
The recent market volatility has caused many investors to be swayed by short-term fluctuations and the numerous variables that can impact the market. These variables include the decline of banks in the US, ongoing geopolitical tensions, the possibility of a global economic recession, expectations of higher interest rates in the US, and the impact of the Adani-Hindenburg saga, among other news developments. Additionally, high domestic interest rates have also been a factor in the recent market trends.
These variables indeed paint a scary picture. Volatility in the market and erosion in notional wealth can shake a naive investor's faith in equity as an asset class. But is not volatility the second nature of markets? Should one get carried away by the recent volatility and resort to selling their holdings?
The variables certainly present a concerning scenario. Market volatility and erosion of notional wealth can easily rattle the faith of a novice investor in equity as an asset class. However, it is key to remember that volatility is inherent in markets. So, should we be swayed by recent fluctuations and hastily resort to selling our holdings?
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