Is this a market crash or correction?

For the last five months, Indian markets have been continuously declining, and they are experiencing very volatile movements.  Indian markets have wiped out billions of dollars of investors’ wealth due to the excess fall in the market.  

People consider it a crash, whereas some consider it a correction. But first, what is Crash & Correction?   

What’s happening in the current scenario, a crash or correction?   

First, let’s understand the difference between both. Then, we will discuss past events when markets experienced a similar situation to now and how long it took for them to rebound. 

What is Crash & Correction?  

If a market fall is in the range of 10% -20% from a recent market high, we call it Correction. It is a natural part of market cycles, which are due to overvaluation, economic concerns, or geographical events.  

These corrections can last from a few weeks to several months but usually they do not signal a long-term financial crisis.  

But if the markets fall more than 20%, we usually call it a Crash. They often occurred in weeks or days. Unlike corrections, crashes are typically fueled by selling, systematic economic crises, or speculative bubbles bursting.  

So, what’s happening now? Correction.  

After hitting the all-time high of 26000+ points, markets are now trading near 22000 points, which is yet less than the 20% fall. So as per the above points, it is not a crash; it’s a correction.   

Then, why are markets falling? read this blog where you can find the reasons behind the fall of Indian markets.   

So, market corrections are new; they are part and parcel of the stock market’s journey. 

2015 – Global Slowdown:  

During 2015 Sensex experienced a decline of approximately 15% during that period, which is influenced by global factors such as weak demand and the devaluation of the Chinese yuan.  

The recovery happened in approximately 6 months.  

2018 – Trade War & IL&FS Crisis:    

In 2018, the Nifty 50 index corrected by about 14% due to global trade tensions and the IL&FS crisis.  The recovery period was around 5 months. 

2020 – Covid19- crash:  

Nifty 50 index experienced a sharp decline of approximately 35% in March 2020 due to the COVID-19 pandemic.  But markets rebounded to pre-cash levels within 9 months. 

2008 – Financial Crisis:  

This was the period when markets declined heavily, even Nifty 50 plunged by about 60%.  

The recovery to pre-crisis levels took approximately 2 years.  

Even there are situations where markets have corrected and crashed in other scenarios, but these are recent years information.   

So, most people have this confusion whether to stay invested or stop investing.   

While corrections and crashes can be unsettling, they serve an essential role in resetting overvalued markets and creating fresh opportunities for smart investors. Historical data proves that markets always recover, often reaching new highs after a downturn. 

A common confusion during market downturn is whether to stop investments or continue. The best strategy is rupee-cost averaging, where investors keep buying at lower levels, reducing the overall average purchase price.  

This helps in maximizing gains when markets eventually recover.  

For the first time since the year 2000, the Nifty 50 index is on a five-month losing streak, having fallen 15.87% from its all-time high. This prolonged downturn has triggered widespread concerns among investors, wiping out billions of dollars in market capitalization. While some fear this is the beginning of a severe market crash, others believe it to be a healthy correction.   

What’s your view on this scenario?    

This article is for educational purposes only and should not be considered as financial or investment advice. Always do your research or consult a SEBI-registered investment advisor before making any investment decisions.  

Savart is a SEBI-registered investment advisor, founded by Sankarsh Chanda. The purpose of this content is to educate, not to advise or recommend any particular security. Please remember that investments are subject to market risks. Please conduct thorough due diligence or seek professional guidance before making any investment. Do not believe in any speculations.