InvestorQ : There is a talk that the stock market is heading towards a major correction. What are your views on the subject?
Moii Chavate made post

There is a talk that the stock market is heading towards a major correction. What are your views on the subject?

Sam Eswaran answered.
2 years ago
The Indian stock market is witnessing an unprecedented bull run where Sensex has touched the 60,000 level. But as they say, whatever goes up, must come down. The same is the view of the analysts who think that the stock market is heading towards an inevitable correction. If analysts' beliefs hold true, a high level of risk looms above the stock market investors. 

The concerns started with the Inflation rate touching 6% in the months of May and June. Although it has eased to 5.3%, analysts believe it is still high and is not ideally reflected in the stock market. Furthermore, the concerns are fueled by a global supply shortage, the China real-estate crisis, and the recent energy crisis in India, owing to the slump in Coal output. 

The prices of crude oil and Natural Gas have skyrocketed to $81, the highest in three years. Although it is good for the two as commodities, global inflation in this sector is a cause for worry for energy stocks. Analysts believe that the current inflation rate may hold or accelerate in the near future, backed by rising fuel prices, the current energy crisis, and RBI’s disinterest in raising interest rates. 

For the Investors, the worst thing at this time would be to have 100% asset allocation in equities, i.e. to have all of the invested amounts in the stock market. The best would be to allocate a portion of the investments into commodities. As commodities show an inverse price relationship with the stock market, investors can ensure a positive outlook when the ongoing factors trigger a major stock market correction. Additionally, investors can consider Mutual Funds that invest in foreign stocks as a way to diversify within the same asset class. Apart from market instruments, investors can diversify and limit their dependency on the stock market through low-risk, steady returns investment tools such as FDs, PPFs, debt instruments, etc. 

As long as the stock market is concerned, power companies, realty stocks, chemical stocks may outperform while metal stocks, pharma stocks may drag, ultimately turning towards the correction.