What to Do in Market Crash

    "During such scary periods, you should never forget two things: First, widespread fear is your friend as an investor, because it serves up bargain purchases. Second, personal fear is your enemy. It will also be unwarranted." - Warren Buffett

Before the Budget, Indian stock markets were on a roll. Markets gained an impressive 28% in the past one year. The Sensex closed above 36,200 on 29 January. It seemed nothing could halt this juggernaut.

Then all hell broke loose. Clearly, the long-term capital gains tax did not go down well.

But there is a much simpler explanation at hand.


What Goes Up Must Come Down

Markets have never moved only in one direction. In raging bull markets, often a single negative trigger can reverse the direction. In our case, it turned out to be the Budget.

But Don't Be Afraid

Market crashes are nothing to be afraid of.Crashes are necessary, from time to time, for the healthy functioning of markets. A big loss on any one day does not mean a bull market has changed to a bear market.It means that a much-needed correction is finally happening.
The world's richest investor, Warren Buffett, loves market crashes. In his 2017 letter to shareholders, he wrote:

"The years ahead will occasionally deliver major market declines -- even panics -- that will affect virtually all stocks. No one can tell you when these traumas will occur."

Indeed. No one could have predicted this correction.

We had reached a stage where the market had become very expensive. A correction was badly needed to bring valuations down to reasonable levels.

What Should You Do Now? Market corrections like this one, are a great opportunity to accumulate high-quality stocks at sensible prices.

"The 800-point crash in the Sensex, today, was not an over-reaction to the Budget. As much as the business papers and talking heads would like you to believe so, that's not true. Rather such a correction was in the offing for long. And it is something I have been warning you about for a while.For a safety-first investor, such corrections should ideally be the period of maximum activity."

Also, If the market keeps falling... stay tuned for more good opportunities.
In conclusion, here's what I believe you should do.

• Do not give in to fear.
• Know that the market will recover.
• Focus your efforts to identify the highest quality stocks.
• Check if their prices have fallen to attractive levels.
• If yes, buy them and hold for the long-term.
• If not, be patient and wait for the right price

 The market was due for correction and budget became the trigger. In my opinion, even if the budget did not have LTCG, markets would have still fallen but the loss was extended with this bad news.

10% LTCG is definitely a dampener but cannot be the reason for markets to crash.

Where else can you really invest if not equity for higher returns. And if markets can give you 15+ CAGR, then I am sure even post tax returns are much higher than than any other asset class.

Also LTCG is levied on all developed and most developing economies so it’s not new for FIIs.

They were just enjoying the benefit so far.

So to answer your question, YES this will be an opportunity to invest or even average but hold on to your nerves. You might see some more downside in the coming week (especially till Wednesday) before the market settles down.

If you are looking at stocks, you can find value buys and if you are looking to invest in MF, I would recommend deploying your money in parts. A weekly SIP could be helpful in such scenarios.

India is a growth story and there is no doubt about it. Think long term and use these knee jerk reactions to build a portfolio.

Next Read : Why: Midcap and Small stocks taking a hit in spite of the Nifty going up?
Prevous Read:Markets have crashed,is this right time to buy?