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The market is a sea of red today. At the time of writing, investors have lost over Rs 20 lakh crore in a single day, as the election results have spooked investors. At such a time, it is natural for us investors to panic and sell our equity investments.
However, such knee-jerk reactions are not only harmful to your knees but also to your wealth.
Here's why: if you look at the accompanying table, we have identified six days since 2008 where the Sensex - a proxy for the Indian equity market - has tanked 6 per cent or more. But guess what, the market eventually recovers; in some instances, as in March 2020, the markets recouped a 13 per cent loss in as little as three trading days.
Even if it takes 148 days for the Sensex to recover the 7 per cent loss it was inflicted on November 11, 2008, it has rebounded handsomely, delivering 20 per cent and 16 per cent returns over three- and five-year time frames, respectively.
Further, on the other couple of occasions where the Sensex fell more than 6 per cent, it has delivered at least 17 per cent in the next five years. In other words, had you not exited the market, your money would have more than doubled in five years.
A massive single-day Sensex crash has little impact on long-term returns
| Date | Sensex returns | Recovery in | 3Y returns | 5Y returns |
|---|---|---|---|---|
| 24-Oct-08 | -11% | 7 days | 25% | 19% |
| 11-Nov-08 | -7% | 148 days | 20% | 16% |
| 07-Jan-09 | -7% | 85 days | 18% | 17% |
| 12-Mar-20 | -8% | 112 days | 22% | - |
| 16-Mar-20 | -8% | 79 days | 22% | - |
| 23-Mar-20 | -13% | 3 days | 31% | - |
What you should do
The data suggest you shouldn't twist your knickers over a day-long onslaught in the market. Forget the short-term volatility associated with equity markets; in the long run, they typically help your money grow.
So, just keep calm and carry on.
Also watch: Why are the markets jittery? What should you do?
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