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The Market Crash: What You Need to Know and What You Need to Do - Private Briefing

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The Market Crash: What You Need to Know and What You Need to Do
Oct 12, 2018

The amount of wealth destruction in this market crash - more than 20 lakh crore in a month and a half - is truly mind-boggling.

The reasons - high oil prices, falling rupee, rising US interest rates, uncertainty about the upcoming elections - have all been endlessly repeated by the media.

But it is of no use to the aam investor.

What should you do?

Should you buy? Hold? Sell? Which Stocks?

Over the last two weeks, our readers and subscribers have written to our editors with many questions about the market crash.

Our editors have been busy answering your questions and explaining their views.

In today's Private Briefing, I want to bring you the views of three of our editors who will cover the macro outlook, the long-term investing outlook, and the trading outlook.

First up, for the macro, big-picture view, is Ankit Shah, editor of Equitymaster Insider. Ankit cherry-picks the best investing idea from across 8 of Equitymaster's research services every day and shares this idea with those on his Insider list.

    Do you recall that little over a month ago, on 31 August 2018, the BSE Sensex had closed at 38,645?

    On that day, the total market capitalisation of all listed companies on the BSE was Rs 159.3 lakh crore (1 lakh crore = 1 trillion). As per my study, this was the highest aggregate market cap level ever.

    Over the 22 trading sessions that followed since then, the Sensex lost 4,268 points (down 11%).

    The total market cap of all BSE companies fell to Rs 136.6 lakh crore as on 5 October 2018 (down 14% since 31 Aug).

    In other words, Rs 22.7 lakh crore worth of shareholder wealth has been destroyed in just 22 days!

    During this period, foreign investors sold Indian equities worth Rs 17,919 crore.

    I want to show you the extent of correction that stocks have faced from their respective 52-week highs.

    Over the weekend, I compiled the stock price data of 2,733 listed companies on the BSE. I wanted to know how much each stock had fallen from its respective 52-week high.

    The Average Stock Has Crashed 46% From Its 52-Week High

    The Average Stock Has Crashed 46% From Its 52-Week High

    Here's what I found out...

    • 688 stocks (25% of the active stock universe) have crashed 61% or more from their respective 52-week highs.
    • On average (in both mean and median terms), Indian stocks have corrected 46% from their 52-week high.
    • There are just 112 stocks (4% of the active stock universe) that have corrected 10% or less.
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