Shocks Rattle The Markets, Recoveries Happen Soon After

Local or global events have the power to rock equity markets over the world but they should not be the cause for panic among investors. Geyatee Deshpande finds out how markets have recovered in the past whenever shocks and contingent events have impacted markets negatively. There is a lesson to be learned here by long-term investors

- Geyatee Deshpande

Equity investors, from time to time, are faced with contingent events and shocks that threaten to shake, rattle and roll the markets. The impact in the initial phases of such events or shocks on investors’ sentiment is such that investors start believing this may well be the end of a good run for the markets and that there may be no treatment for such a malaise. In fact, doomsayers enjoy such moments when they proclaim that the curtains on the markets are now down forever. However, guess what, the initial fears of investors have almost always been proven wrong by the markets. That is because each time any contingent event – global or local in nature – has impacted the equity markets negatively, there has been a steady recovery in the markets.

At times the markets may have taken longer to recover than usual but the fact remains that they have always recovered. This is something that every long-term investor should bear in mind. To cite an example, the recent shock faced by global equities comes from the crisis in the Middle East region where war clouds seem to be forming fast what with the hostilities between certain nations on the increase over the past few weeks and the probability that the scenario may escalate soon. Initially, the Indian markets, matching the sentiments of the global equities, sharply reacted negatively to the development.