Is There Any Chance of a Market Crash or Deep Correction? Insights and Predictions

Commodities such as Nifty have been reaching new highs, but concerns about the Advance Decline (AD) ratio are rising daily. This is a critical period where caution is advised. In this article, we will explore the possibility of a market crash or deep correction, examining various perspectives and market trends.

Market Stability and Reasoning

No Immediate Concern for a Deep Correction

The first responder argues that the first quarter (Q1) earnings were satisfactory, sectors have shown remarkable recovery, and export growth remains robust. Moreover, the automobile sector, which typically performs well during festive seasons, is expected to perform strong as these seasons approach. Additionally, industrial production increased by 14% in June, indicative of a neutral to good performance despite the pandemic. Due to this positive outlook, optimism surrounding the second and third quarters (Q2 and Q3) has driven the market rally. However, the markets generally experience some adjustments from time to time, and index management is expected, but a deep correction is unlikely in the near future.

Personal View: Expectations of a Market Correction

Pending Market Correction Since February 2021

Another perspective considers that a market correction is overdue since February 2021, and the correction might manifest in the third or fourth quarter of 2021 (October 2021 to February 2022). This view emphasizes the increasing vaccination rates and the influx of new retail investors. However, earnings have improved, and low-interest rates contribute to the belief that the Nifty index can see short-term growth above 17,000. Furthermore, following a famous saying that 'Markets never correct twice for the same reason,' the belief is that a crash is improbable if there is another wave. A mild long-term correction is speculated to offer opportunities to purchase stocks at attractive prices.

Speculative Views and Expected Patterns

Anticipated Small Price Correction Around 16,300 to 16,700

The third perspective suggests that a small price correction might occur around 16,300 to 16,700. There are no signs of a deep correction or crash yet. However, if a similar situation to the March-May 2020 period were to occur, where the market experienced a significant drop (35-40% of the index value), additional investments in the portfolio might be considered. This view indicates that a correction is always a possibility, and one should be prepared for it.

Conclusion and Final Thoughts

In the present scenario, a deep market correction is unlikely. However, minor adjustments are still expected. The likelihood of a deep correction cannot be completely ruled out, as the severity of major crises is unpredictable and impossible to forecast with precision. Therefore, monitoring market indicators and being prepared for various scenarios remains a prudent approach.

Investors are encouraged to stay informed and make well-informed decisions, while always keeping in mind the potential for market corrections and learning from past events. Happy investing!