Correction vs recession: Will there be a market correction or recession in India?

India’s long-term growth prospects continue to remain strong; however, it is not immune to events outside its borders. The stock markets are likely to struggle, but will this result in a correction, or will the global issues trigger a domino effect in India?

market correction or recession

The Indian equity markets are expected to remain choppy amid global recession concerns. The US is not alone; other developed economies such as Japan, Finland, France, and Italy too are staring at a downturn. The ongoing Russia-Ukraine and China-Taiwan conflicts are only making things more difficult. 

India’s long-term growth prospects continue to remain strong; however, it is not immune to events outside its borders. The stock markets are likely to struggle, but will this result in a correction, or will the global issues trigger a domino effect in India? But before we dwell on that, let’s clear up the difference between correction vs recession.

What is a correction?

A correction is an extended decline in the value of an asset or, in this case, the value of market indices such as Nifty 50, BSE Sensex, or a commodity index. Economic developments, regulatory or tax changes, and even global events may trigger a market correction, where investors tend to become cautious and book their position rather than feed on uncertainty.

In the last 30 years, Nifty 50 has witnessed over 19 corrections. As a standard gauge, a correction is considered to be a decline of over 10% from the indices peak but less than 20%. Anything more than 20% means the index is moving into bear territory. 

Also Read: What Is A Stock Market Correction? How Far Will The Market Correction Go?

What is a recession?

While there is no one clear way to define a recession, prolonged periods of economic contraction denoted by a drop in real GDP, employment and income levels, and industrial activity are indicators of a recession. A continuous decline in gross GDP over two quarters (six months) may be indicative of a recession. 

Recessionary cycles could last for a few months or even years. Since independence, India has had five recessionary cycles, with the last one being as recent as 2020-21, owing to the global chaos caused by the COVID-19 pandemic.

Also Read: What Does Recession In The West Mean For India?

Managing expectations and investments

So, are we currently looking at a correction or recession? Unfortunately, that question can only be answered in hindsight. A correction is more of a short-term event; but if it prolongs, it could turn into a recession. 

Rather than making an offhand prediction of recession vs correction, as an investor, it is imperative to have a strategy that helps you tide over any adverse event(s). It starts with a diversified asset allocation strategy that is in line with your risk appetite and life goals.

Also Read: The 5 Best Recession-Proof Businesses For A Side Hustle

A balanced portfolio spread across asset classes will be able to reasonably absorb short-term volatility. It prevents emotions from swaying your decisions, allows you to  rebalance your portfolio and book profits where possible, and gain from rupee cost averaging for value stocks/investments.

Peaks and troughs are inherent to the cycle of markets. Whatever the phase we are in right now, it is not the first downturn and surely won’t be the last.

NEWSLETTER

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