Over 750 Stocks Hit 52-Week; How Long Will The Stock Market Carnage Last?

On Monday, BSE's Sensex and NSE's Nifty 50 experienced their biggest ever decline amid a global carnage of equities as anxiety spreads among investors over the spread and potential economic impact of coronavirus.

Sensex, as well as Nifty, fell nearly 7 percent in intraday trade to 35,109.18 and 10,294.45, respectively.

Over 750 stocks were trading at 52-week lows on the Indian stock exchanges with nearly 200 at new all-time lows.

The equity markets are experiencing high volatility for the last few weeks after reports of a sudden surge in infections and casualties outside China.

There were momentary periods of recovery after the interest rate cut by the US FED and announcements of emergency aid from the IMF and World Bank to fight the virus. However, the bloodbath intensified this week after concerns of a possible oil price war triggered by Saudi Arabia caused investors to flock to bonds and safer assets.

How long with the market correction last?

While past corrections cannot correctly determine how the markets will play out this time, historically, the markets have ultimately recovered from declines caused by panic over epidemic outbreaks, including SARS, swine flu, ebola and other viruses.

According to CNBC and Goldman Sachs' analysis, there have been 26 market corrections in the past since World War II with an average fall of 13 percent over the period 4 months (on an average).

These corrections have taken 4 to 6 months to recover, on an average.

While that feels fairly reassuring, there is one limitation. The data analysed showed that if we were to enter the bear market territory, which is when the markets are down by over 20 percent from a high, the recovery time will be much longer.

The research further showed that there have been 12 bear markets since World War II with an average decline of 32.5 percent. The last one was seen from October 2007 to March 2009, when markets fell 57 percent and took over four years to recover. If you recall, this was also known as the period of great recession in the global economy which lasted 19 months.

On average, bear markets after World War II have lasted 14.5 months and have taken two years to recover.

Right now, with over 1 lakh infection cases reported around the world and severe restrictions imposed on mass gatherings and transports, it is hard to say if coronavirus is more severe than other epidemics or if it will have a more drastic effect than the great recession.

The silver lining is that globalisation and modern technology has enabled non-manufacturing firms to carry on businesses. Large tech and banking firms have asked employees to work from home or have prepared themselves in case the need arises, to assure continuity of their services.

Conclusion

Dramatic declines will take a while to recover. Your investments, including mutual funds, will also take a few months to make a significant recovery unless they have suffered due to reasons other than the effects of global sell-off.

If you invest in direct equity, you could pick up some good quality stocks at the current discounted prices with a long term perspective. Experts suggest looking at individual stock investments with a 5 to 10-year investment horizon and not give heed to market fluctuations.