Thursday, March 31, 2011

Why Did The Exchange Crash And What You Do Now?

By Felix Fransisco

If you're a stockholder in the stock market, the occurrences of the last couple of days must have caused a large amount of concern. Remember the black Tuesday of Jan twenty-two when the market plunged by at least eleven percent in the first few minutes of trade. Twitchy sellers pushed the panic trigger, sending the markets into a free fall, till it hit the circuit breaker, which mechanically caused all trading to come to a halt, both, at the BSE and NSE. The thirty stock Sensex lost about 2273 points during the daytime, before some worth purchasing made it recover some losses. Eventually , it closed the day at 16,729.94 points, still down by 875.41 points. The prospects for the share market appears to have changed overnite. Let's have a quick look at the prime factors answerable for such an extreme fall in the markets.

Fears of a recession in the States.

One of the largest reasons for the industrial strength fall in the markets is a phobia of recession in America economy. The worldwide investment climate has changed with the impact of the sub-prime crisis in America mortgage market taking its toll. Huge investment banks and conglomerates are declaring great losses and investors' confidence is totally shaken. There's a pronouncing that when the US sneezes, the entire world catches influenza. Not surprising that the majority of the economies are having inter-linkages with what has happened there. The after effects are felt in our markets also as the unwanted effect on IT firms, BPOs, KPOs, export orientated units and other sectors are feared ultimately.

Enormous selling by FIIs and hedge funds.

Hedge Funds and Foreign Fiscal Establishments ( FIIs ) have also started selling in our markets. This is as they would like to reallocate their investments and book profits to chop their losses because of the financial disintegration. The volatility of financial markets seen today is the results of continuing and heavy selling pressure by backers of all classes due to doubtful times and events.

IPOs drained out liquidity from the system.

Domestic factors also made a contribution to the record fall in no little measure. The first market was deluged with a big number of IPOs. Liquidity was sucked from the market as folk invested in these offerings with expectations of windfall gains on listing. Dependance Power IPO was oversubscribed by as much as 72 times with speculators putting in bids for over 1,654.8 crore shares as against 22.8 crore shares offered. As per a guess, more than Rs sixty thousand crore was locked in the offer by way of application money, thus causing liquidity issues in the secondary market.

Do not sweat and stay invested for the long run.

If you're a long-term financier, who has invested in essentially powerful corporations, you shouldn't be worried too much about volatility and unexpected recessions. Remain invested and use the chance to buy at lower levels. There's totally no necessity to press the panic button and start selling amid high volatility.

Someone once asked the investment guru Warren Smorgasboard about when the best time to sell one's stocks is and the answer was 'Never ; if you have quality investment'. Also, if you don't have a heavy risk taking capacity, do not attempt to make a fast buck by making an investment in the so-called momentum stocks. They may lose their worth in almost no time and you'll be holding virtually nothing. So be a smart financier and stay invested for the long run.

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