Stock market crash affects the investment around the world. Huge amount is lost within short time. But most importantly, it is the Time that everyone has lost along with money. But why did India stock market crash today. Lot of analysts would recon PSU banking merger but crashes don’t have one reason. They are hard to recognize for public. Take an example of any car accident. The accident doesn’t happen because of a single reason. Car may not have been maintained regularly, driver might be drunk or road may be slippery due to heavy rain. There are multiple reasons for accident and similarly for stock market crash. PSU merger may be one of the reasons but what reason drove to merge the banks. Certainly banks failed to identify defaulter at right time. Fresh credit defaults happening add negativity to market. Had company paid the interest and repaid the loans on time, would there be any reason to merge the bank.
Before PSU merger, Andhra Bank and Union Bank were trading at 19 and 60 respectively. If we do basic math 19 + 60 / 2, the mean value is likely going to be less than 60 and also in the near future until there is another positive update on reforms. We can’t expect such stocks to rise 25% instantly. However situation would improve in the future as auto sector is getting better sales(although they had been worse in the last quarter) in the current quarter, GST collection would improve majorly affected by monsoon floods and GDP would get boost. Lot of Cement stocks were also down today but it is only that they need some corrections, otherwise they are in a really good position.
But above all these, we need to understand another important thing, that there are pointers to every crash. When was the last time the stock market crashed with more than 500 points. How recent was the crash? These are all pointers. If the debt situation doesn’t improve then such events are inevitable. Banks wouldn’t just grow 200% percent even if there are govt reforms. People earn money, invest them in equities and equities starts project or make products. If successful, then people get returns or lose it forever. So it takes a lot of time to build the money and get returns. Sensex down -700 points is just a quantitative indicator of things accumulating over a period of time.
Lack of latest technologies is another major reason behind slow progress of financial institution. Many banks are still in the process of implementation of machine learning platforms . It is making difficult for the financial institution to hold the trust of their customers, address issues and analyse their demands. Banks can reduce cost and understand their customer’s immediate needs using machine learning platforms. Using machine learning, banks can efficiently utilize their human resources at the right places. Machine learning can help to identify probable defaulter before approving loan. They can forecast that if a company failed to repay loan, then which are other companies who has investment in bad companies and how badly they will also get affected and at what level. Machine learning algorithms can also forecasts how much financial institution will impacted when there are changes in government policy, their repercussions and support level.
What a common investor should during stock market crash
- Follow crude oil price. Petrochemical is biggest byproduct of crude oil. Petrochemical is used everywhere. From toothbrush to sandals, it is used everywhere.
- Invest in 3-4 companies at max at a time.
- Don’t invest when market is above 500 points or below 500 points.
- Track companies projects, profit, loss, news everyday.
- Do not buy over 500 quantities and buy few quantities over period a period of year.
- Do not average in unprofitable companies.
- Do not rely on technical indicators. Although they are beneficial but they don’t work when sales figures are crippling.