Fever and Stock market crashes: Are they good?

Sometimes, we fall sick. I heard that fever is good because it removes toxins from the body and kills infections. But when we have fever, we don’t feel good and suffer for a short duration. Short term pain, Long term gain. Anyway, I am not a medical expert, so please don’t construe this as medical advice.

Similarly, stock markets don’t keep going up uni-directionally all the time. Stock markets crash/fall sharply after some period of continuous rise. When I use the word ‘stock markets’, I mean ‘Equity mutual funds’ as well because both move in tandem and my clients invest in Equity mutual funds.

During stock market bull runs, lots of excesses are created both in the stock markets (share prices) as well as in the companies’ balance sheets (assets and debt). These bull runs are followed by crashes (bear markets) that are essential to clean up the excesses. These clean-ups lead to recovery and a fresh start and stock markets will cross the previous highs making new life time highs each time.

Let’s observe some stock market crashes and the recoveries that followed.

2008 sub-prime crisis

	Jan-2008	Mar-2009	% Fall	Mar-2015	% rise
Sensex value	21,206	8047	62%	30,024	273%
Invesco India Midcap Fund NAV	15.67	4.82	69%	35.95	646%
HDFC Midcap Opportunities Fund NAV	13.06	5.32	59%	37.98	614%
DSP Midcap Fund NAV	16.64	5.97	64%	37.72	532%
UTI Midcap Fund NAV	35.16	11.19	68%	80.09	616%
SBI Magnum Midcap Fund NAV	38.47	8.26	79%	57.98	602%
Franklin India Prima Fund NAV	321.48	99.56	69%	683.36	586%

NAV – Net asset value (Value of one mutual fund unit)

You can observe that the stock market (sensex) and the mutual fund NAVs have fallen sharply. But you can also observe that a patient investor will be rewarded handsomely if he/she takes advantage of the fall by investing additional money and holding on to the investment for long-term.

Let’s check out another crash and recovery cycle.

2020 Covid crisis

	Jan-2020	Mar-2020	% Fall	Jan-2022	% rise
Sensex value	42,273	25,638	39%	61,475	140%
Invesco India Midcap Fund NAV	53.23	37.97	29%	92.4	143%
HDFC Midcap Opportunities Fund NAV	56.33	36.45	35%	96.08	164%
DSP Midcap Fund NAV	61.24	41.51	32%	96.08	131%
UTI Midcap Fund NAV	106.85	70.19	34%	198.43	183%
SBI Magnum Midcap Fund NAV	77.19	49.58	36%	149.61	202%
Franklin India Prima Fund NAV	1006.63	646.07	36%	1573.13	143%
Mahindra Manulife Midcap Fund NAV	10.29	7.05	31%	18.56	163%
Union Midcap Fund NAV	-	10	-	29.48	195%
Quant Midcap Fund NAV	59.02	39.46	33%	123.79	214%

NAV – Net asset value (Value of one mutual fund unit)

June 2022

	Jan-2022	June-2022	% Fall	June-2024	% rise
Sensex value	61,475	50,921	17%	77145	51%
Invesco India Midcap Fund NAV	92.4	73.59	20%	139.56	90%
HDFC Midcap Opportunities Fund NAV	96.08	80.28	16%	179.36	123%
DSP Midcap Fund NAV	96.08	75.19	22%	132.41	76%
UTI Midcap Fund NAV	198.43	158.78	20%	293.24	85%
SBI Magnum Midcap Fund NAV	149.61	123.26	18%	216.12	75%
Franklin India Prima Fund NAV	1573.13	1238.34	21%	2580.54	108%
Mahindra Manulife Midcap Fund NAV	18.56	14.62	21%	30.82	111%
Union Midcap Fund NAV	29.48	23.65	20%	45.12	91%
Quant Midcap Fund NAV	123.79	107.68	13%	246.21	129%

NAV – Net asset value (Value of one mutual fund unit)

Conclusion:

1.   Every crisis (crash) gives rise to new opportunities.

2. Never let a crisis go waste. Take advantage of it by investing more.

Disclaimer:

Mutual fund investments are subject to market risks. Please read the scheme information and other related documents before investing. Past performance is not indicative of future returns. Please consider your specific investment requirements before choosing a fund, or designing a portfolio that suits your needs.