Falling Indian stock market - A buying opportunity or a falling knife?

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May 15, 2020

Indian stock market has experienced a sharp fall of around 40% from its high (NIFTY fell from 12430 to 7511) in Feb and March. Last time such a fall happened in 2008 recession; however, it was not as steep as it has been now.

In April, the stock market recovered ~30% from its low, making people falsely believe that market has become bullish after hitting the bottom. Most of the retail participants have started experiencing FOMO and are eager to invest in the market. But the retail participants need to be cautious as it can be a dead cat bounce and a trap. Further, if we have a look at volatility index (India VIX), it is high indicating that it is not the investor’s market.To sum up, it would be best for the retail investors to sit on cash right now and let the dust settle down. Also, COVID-19 will have long lasting effect on the economy. Therefore, market may undergo further correction as industry earnings for the coming quarters look quite gloomy.