Helping You Build Wealth With Honest Research
Since 1996. Try Now

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

India's Third Giant Leap

This Leap Could Potentially Generate Gains
Far Bigger than Anything We Have Seen in Our Lifetimes




**Important: We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
**By submitting your email address, you also sign up for Profit Hunter, a Free-for-life newsletter from Equitymaster,
which offers the most profitable investing ideas in India.


AD

What is an Economic Recession?

Recession is a word that triggers the emotion of fear. Usually, when people hear this term, it causes them to worry about their financial future.

Stock market investors are particularly sensitive to what a recession can do to equity portfolios.

Keeping in mind the big impact recessions have on our lives, let’s find out more about them and understand why they are so important.

What is recession?

Recession is a time of economic decline. During a recession, the economy of a country enters a state of contraction. This is measured by negative GDP growth. If it’s serious enough to engulf the whole world, a global recession will be the result.

A recession is usually identified by negative GDP growth for two successive quarters. However, this is not the definition of a recession. It’s a widely used means of identifying one.

There is no widely accepted definition of a recession. Despite this, it’s usually not difficult to determine if a country is going through a recession or not.

What happens in a recession?

  • Trade in goods and services declines as does industrial activity.
  • Investments lose value as financial markets fall.
  • Revenues of businesses fall and weak businesses shut down.
  • Inventories increase as goods remain unsold.
  • Unemployment rises as large numbers of people lose their jobs.
  • Commodity prices fall due to reduced demand.
  • Real estate prices tend to fall or stagnate.
  • Individuals and businesses default of debts due to loss of income.
  • Stress in the banking system rises due to debt defaults. This causes tight lending conditions.
  • Due to low demand and falling commodity prices, the rate of inflation declines. In some cases, it becomes negative (deflation). However, inflation can remain high during some recessions.
  • Central banks reduce interest rates and ease liquidity conditions to boost the economy. In some cases, money is pumped directly into the banking system as a stimulus.
  • Governments cut taxes and increase spending on infrastructure and social programs to boost growth and put money in the hands of the people.
  • Liquid cash in hand becomes a valuable asset.

How long does a recessions last?

The minimum period of economic decline considered to be a recession is six months. There is no limit in terms of how long a recession can go on.

The duration of any recession depends on many economic factors. Usually, there isn’t one cause that ends a recession. However, the extent of government and central bank intervention in the economy is a major factor.

Are there silver linings in a recession?

The good thing about recessions is that prices of almost everything tends to fall or at least stagnate.

Thus, people (and businesses) who don’t lose their income will benefit from an increase in purchasing power. This is especially true during a period of deflation.

However, if a recession is accompanied by persistently high inflation due to supply side problems (as in the case of covid) then purchasing power will fall across the board.

Stock markets fall during recessions. Thus, investors with cash ready to deploy will find ample opportunities to buy fundamentally strong stocks at reasonable prices.


Why Infosys, TCS, HCL Tech and Other IT Stocks are Falling

Dec 13, 2022

IT stocks fell like a pack of cards after HCL Tech reported macro worries. Find out other reasons why IT stocks are falling.

Nifty 20,000: A Cheat Sheet

Nov 17, 2022

What should you do as an investor when the Nifty reaches 20,000?

Why Tech Mahindra Share is Falling

Nov 10, 2022

With talks of global recession, companies have cut back on their spending on technology, which is hurting Indian IT companies.

How to Pick Recession Proof Stocks

Oct 13, 2022

Is it possible to find recession proof stocks? Yes it is. Here's how...

HCL Tech Declares Third Interim Dividend. 5 Takeaways from HCL Tech Q2 Results

Oct 12, 2022

The key highlight for this quarter was HCL Tech raising its revenue growth guidance for financial year 2023.

Bulletproof Businesses to Counter the Market Mayhem

Sep 28, 2022

These firms emerge stronger from crises that typically decimate their competition.

Here's What I Recommend in the Stock Market Bloodbath

Sep 27, 2022

Investing is simple, but not easy. Yesterday was a stark reminder of this.

Could the Stock Market Collapse Back to June 2022 Levels? A To Do List for Smart Investors

Sep 14, 2022

If the stock market is going to crash then here's what you should do about it.

Why the Sensex is Falling

Aug 23, 2022

Fear is back on Dalal Street. Find out why...

Michael Burry says 'Silliness is Back'. Should You be Worried?

Aug 15, 2022

Do you agree with Michael Burry's assessment that silliness is back in the market

What You Can Learn from the Great Crash in Tech Stocks

Nov 24, 2022

Tech stocks crashed. What lesson is the market teaching us?

Charts Suggest IT Index Has Bottomed Out. Here are Top IT Stocks to Track Now

Nov 11, 2022

The Wyckoff bottoming formation and the Last Point of Support (LPS) is in place for Nasdaq. This could have an immediate impact on Indian IT stocks.

How the Global Recession Could Impact India. 5 Companies to Watch Out For...

Oct 27, 2022

Looking for stocks to buy in a global recession. Here are our top pics...

Why Wipro Shares are Falling

Oct 13, 2022

So far in 2022, Wipro shares are down a whopping 46%. This is why.

TCS Announces Second Interim Dividend. 5 Takeaways from TCS Q2 Results

Oct 10, 2022

The company's operating margin stood at 24%, a contraction of 1.6% YoY while it also declared a second interim dividend.

Why the Indian Stock Market is Falling

Sep 27, 2022

Indian stock market has been in a downtrend. Here's why...

Why Infosys Share Price is Falling

Sep 16, 2022

Short term concerns prevail as Indian IT companies are set to see a moderation in revenue growth and operating profit margins.

Why Wipro Share Price is Falling

Aug 30, 2022

Wipro has fallen 10% in a month and is down by 40% on a YTD basis. What does it have in store for rest of 2022?

These 3 Sectors Will Boom Over the Next 3 Years

Aug 18, 2022

While the world is in a fear of a recession, India could be the biggest beneficiary.

How the Crude Oil Price Collapse Will Impact India. 5 Points...

Aug 9, 2022

Crude oil prices keep falling amid fears of recession, demand-supply dynamics, among other reasons. Find out how it impacts India.