Why market crashed today : should we worry?

Dalal Street’s Retreat

On December 20, Dalal Street witnessed a shift in dynamics as bears seized control, causing a significant retreat in frontline indices. The Sensex plunged 1,611 points from its record high, and the Nifty 50 tumbled 506 points from its peak. This correction, deemed ‘long overdue’ by market observers, raises questions about the sustainability of the recent rally.

Correction Analysis: A Necessary Pause

Market experts view the recent correction as warranted, attributing it to concerns over valuations. Vinit Bolinjkar, Head of Research at Ventura Securities, suggests that the correction might continue, with Nifty potentially testing the 21,000 levels in the coming days. The need for profit-booking at this peak was acknowledged, signaling a ‘risk-off’ approach for investors until Nifty establishes support above 21,000.

Expert Insights: Normalizing Valuations

VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, considers the profit-booking as a ‘very normal’ market behavior. He emphasizes that markets don’t ascend linearly, and the correction, long overdue, contributes to the overall health of the market. Valuation-wise, midcap and smallcap segments were trading at 26 times price-to-earnings (PE) ratio based on FY24 earnings, compared to the benchmark Nifty’s 21x PE ratio.

Sectoral Impact: Broad-Based Sell-Off

The correction wasn’t confined to specific sectors; it was a broad-based sell-off. Nifty Media index suffered a nearly 6 percent decline, while Metal, PSU Bank, Realty, Oil & Gas, and Auto indices also experienced substantial losses. Vijayakumar sees this correction as an essential step in restoring valuations to more sustainable levels aligned with fundamentals.

A Healthy Adjustment or Harbinger of Volatility?

As the market corrects, opinions vary on whether it signifies a healthy adjustment or foretells increased volatility. Investors are advised to navigate cautiously, considering expert opinions and closely monitoring the evolving market dynamics. The correction, while unsettling, may bring valuations to more realistic levels, offering a potential opportunity for strategic repositioning.

Disclaimer : This Article is to share opinions only and no investment or trading decisions should be made on its basis. We will not be liable for any financial loses

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