A stock market crash is a large and generally rapid decline in stock market prices. Here, a market index may drop severely in a day, or a few days, of trading. The cause of the crash can be the overinflated economy, any kind of social-environmental disaster, bad news, etc. And generally, when a recession comes, it covers the global market. Like in this 2020, the global market crash due to the fear of a decease called Corona Virus. In this context, I will show you the technique to survive from a stock market crash.
When shareholders dump their stocks for any uncertain events like natural calamities, Causes include an overinflated economy, disasters, and other bad news events.
If a market double-digit percentage drop occurs within a couple of months, you can assume the market crash is going to happen soon. From January to March middle, the market correction is about 38%. So it can clearly assume that it is going to be a huge crash in the year 2020 due to Coronavirus.
The last stock market crash in India was in 2008. On that year market correction was more than 63%. The recession came due to many unwanted global economic scenario. The market crash took 14 months’ time to recovered.
Market Crashes can lead to a deep bear market. If the market falls 10% beyond a correction for a total fall of 20% or more. It generally lasts for 14 to 18 months.
1)At the beginning of the recession, just book most of the profit from the market.
2)Prepared an emergency fund.
3) Wait for the correct time, then invest during the bottom of the market crash.
4) Stay updated with the news global and regional economics.
How do you Hedge against the Stock Market Crash?
Here are a few tricks by which you can easily hedge your funds against the stock market crash.
- Do not invest all of your capital into the equity market. Put some of them into secured ones. Though secure investment options, the returns are low, still a part of your capital should be invested in the secured option.
- Try to invest in the commodity market. Gold hedging is quite popular against the stock market crash.
- Hedging through call and put options in the derivative market is also well known. You can hedge your stocks by futures options.
- Short selling or short position can give you huge profits during the market crash.
Historical Scenario of the Stock Market Crash in India 2008
In the year 2008, India had one of the largest erosions in investors’ wealth. In that year, on January, Monday BSE Sensex fell by 1408 points. The day is known as “Black Monday”. The crash happened due to global investment climates, selling of FII, volatility in commodity markets, other worse economic events. On the next day Sensex again fall and the fall continued till November 2008. The recovery cycle took almost 14 months.
Now, have a look at the above picture. There the Fibonacci levels clearly show the market falls more than 62% within a year. The fall didn’t come so quickly, it happens for months. First, the price breaks the support of 38.2%, then 50% and lastly 61.8%.
Current Scenario of the Stock Market Crash in India 2020
Here, let’s come to the most important part of this content. Now, we are going to discuss the current market crash scenario of 2020. Back then in 2008, the huge fall was happened due to some unwanted economic affairs. But this year, the trigger point is a disease. This year’s market drop so quickly compares to 2008. From January to March the market falls by almost 39%. First, have a look at the PE ratio.
The above graph represents Sensex PE (price to earnings). As we can see that this year Sensex PE touched the lowest 10 years average value that is 19.78.
As of (16th March 2020) this is the scenario. As you can see the market is currently near about a 38% correction level. Though it has not reached that level yet, still the price fall speed is faster compared to 2008. I have clearly marked the three support zone in the picture. The first support is at 38.2%. After breaking the 1st support level, the price will go towards the 50% level, and then the last S3 zone is 61.8%.
There is a slight chance that the market will bounce back to test the last high. But if it fails to cross the high, the price will again go down. The last low Nifty made was at the 85oo level. It will take some time to break the low, once it will be broken the price will go down further.
What are the best ways to Survive the Stock Market Crash 2020?
- Currently, the market is in an indecision stage, if you think that the market falls enough and now you can invest your money, then I suggest it is still not the correct time to invest.
- As the market scenario mostly depends on the social environment, here we have no control of our own.
- It is been expected to see a further down move. Market crash generally takes 14 to 18 months to recover.
- It is advisable to invest your money at the bottom and book the rest of your profit now.
- Try to put money in some secured returnable investments.
Going up and down is the nature of the market. You need to stay cautious while investing. Think about how much money you can make if you invest at the right bottom of the market. Do not take quick decisions based on news and others’ view. Try to analyze the market on your own.