The European crisis has come like a shocker to the global stock markets. Emerging markets like India haven't been spared either. And with the crisis not looking to get over quickly, investors remain on tenterhooks as of now. The last week saw global markets crash under this stress. Except China, most other key global indices closed the week with losses of 5-10%. The BSE-Sensex was down around 5%.
As we enter a new week, news flows from the global markets remain not so good. While there have been some positive earnings reports coming out of Indian companies, markets seem to be least interested in them. The topmost concern remains the European crisis and whether it could lead to another worldwide crash in stocks. In short, the overall sentiment seems dicey to say the least.
Indian markets are already at their lowest in two months. Stocks from realty and commodities sectors have been among the worst hit during this period. Realty stocks have been under pressure due to fear of higher interest rate given the rising inflation. As for commodity stocks, these have been weighed down by the global concerns, chiefly led by fear of an extension of slowdown in the western world.
So what are you doing now as the markets move on a correction path? Being brave and investing fresh money? Or being cautious and waiting on the sidelines for the markets to correct further? Or being fearful and selling off your investments that you had originally bought for the long term?
The thought of losing money in a correction seems a terrifying prospect to most investors. But going by history, such a fear seems misplaced especially if one is invested into quality companies. Your real fear as a long-term investor should be not having enough saved to meet the financial needs of your children, or to live comfortably after retirement.
Not only can periods of high volatility like the current one be tamed, these can even create some great opportunities for long term profits.