Market crashed wildly due to Coronavirus. What exactly happened?
More than half of the global population doesn’t know how to swim though it is a life skill, according to a report. That’s a problem but there’s more to it. It has been scientifically proven that more than the deep waters, it’s the panic that kills people. Whenever a person gets stuck in water and has no other option but to swim, in most of the cases it so happens that the person starts panicking and assuming that he/she will die. Because of this, the person reduces his chance of survival and dies.
This shows how important sentiment could be. Sentiment is one of the most prominent factors that led to the recent stock market crash. Not in the long term, but sentiment does affect the market in the short term. And that extent has been shown in the recent market crash. That sentiment could be compared with the panic that we mentioned earlier.
Where Did the Panic Come From?
We are currently witnessing that people are panicking in the entire world from Coronavirus. This same panic has caused the Indian market crash! This can be made out from the fact that market started falling drastically when the first case of Coronavirus was reported in India. We also can not ignore the fact that Coronavirus has affected industries across the globe and as a result it has adversely affected the global economy.
Travel and tourism, hospitality, entertainment & leisure, food etc. all these industries are suffering from the impact of Coronavirus and they do not look to get respite anytime soon. Quarantines, lockdown of public places and social distancing is just adding to the negativity of sentiment. So, when the epidemic entered India, investors started running away with their tails down (started panicking and selling off their investments).
Reference from History
The Sensex free fall in the past few weeks resembled the market crash of 2008. You’ll be shocked to know that Sensex fell close to ten thousand points in the last one month only. Such free fall was recorded in the history as well at the time of similar events. Whenever the viruses have haunted the world or India in particular, market has responded with a crash.
Be it outbreak of SARS in 2003 or Ebola in 2015 or Zika or Nipah or H1N1, market has always gone down drastically and investors have lost money. Coronavirus outbreak was no different. In fact, it overtook other epidemics (in the past) and caused more damage to the market. With the already struggling economy, the effect of outbreak just amplified (as it looks like).
The good news is that we’re not living in Zimbabwe (and hence the things are under control). Yesterday’s market movement shows that we are on the way to a speedy recovery. However, as the second death has been reported due to Coronavirus, it is hard to say whether the market will recover soon or not. And, coming back to where we started from, sentiment is controlling the market as of now but long-term returns look intact (probably). Historically we have seen that market crashes have resulted in creating wealth for the smart and patient investors and this time as well it may be the same.
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