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 as now and how long it took for them to rebound.
What is Crash & Correction?
A market correction is a 10% to 20% decline from a recent market high. It is a natural part of market cycles, often triggered by overvaluation, economic concerns, or geopolitical events. Corrections can last from a few weeks to several months but usually do not signal a long-term financial crisis.
A market crash is a sudden, steep drop of over 20% in stock prices, often occurring within days or weeks. Unlike corrections, crashes are typically fueled by panic selling, systemic economic crises, or speculative bubbles bursting. They can lead to long-term recessions and significant financial losses.
Then 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.
1. 2015 – Global Slowdown
- Decline: The Sensex experienced a decline of approximately 15% during 2015, influenced by global factors such as weak demand and the devaluation of the Chinese yuan.
- Recovery Time: The market recovered within approximately 6 months.
Source: imf.org
2. 2018 – Trade War & IL&FS Crisis
- Decline: In 2018, the Nifty 50 index corrected by about 14% due to global trade tensions and the IL&FS crisis.
- Recovery Time: The recovery period was around 5 months.
Source: imf.org
3. 2020 – COVID-19 Crash
- Decline: The Nifty 50 index experienced a sharp decline of approximately 35% in March 2020 due to the COVID-19 pandemic.
- Recovery Time: The market rebounded to pre-crash levels within 9 months.
Source: Wikipedia
4. 2008 – Financial Crisis
- Decline: During the 2008 financial crisis, the Nifty 50 index plunged by about 60%.
- Recovery Time: The recovery to pre-crisis levels took approximately 2 years.
Source: Wikipedia
| Year | Event | Decline (%) | Recovery Time |
| 2015 | Global Slowdown | 15% | 6 months |
| 2018 | Trade War & IL&FS Crisis | 14% | 5 months |
| 2020 | COVID-19 Crash | 35% | 9 months |
| 2008 | Financial Crisis | 60% | 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 dilemma during market downturns is whether to halt investments or continue. The best strategy is rupee-cost averaging, where investors keep buying at lower levels, reducing the overall average purchase price. This method 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.