Sensex meltdown

Everybody here in India are now bullish (not about market), but about the correction in sensex. For dummies, sensex is index of 30 shares that account for nearly 70% of market capitalisation in BSE. Yesterday, we had seen a steep fall of 306 points in sensex. All investors would have seen a dip in their assests overnight.

 

I am not a fanatic or frantic equity investor, who gets high adrenalin level, whenever stock market crashes. I invest through systematic investment plan in mutual funds in equity market. Its mere a coincidence with the crash, that I started doing virtual investments in share market day before yesterday. Virtual investments are like a game, you invest virtually an imaginary sum of money in shares, track on the share prices of scrips daily, calculate the profit/loss, modify your portfolio and investment strategy. This game will not eat away your money but will teach you a loooooooot on share markets and investment strategy. You can always barge into real trading on any fine day. This sensex crash had eaten away 0.3% in my virtual investments.

 

Here is my gyan on rupee-cost averaging (RCA) and market correction. RCA is a investment philopshy which says you can buy the shares on crashing time and reduce the overall cost of your investments in that share. For example, you buy 100 shares of company A for Rs.200 each. Next day, you found the share price to be falling down. Assume you purchase again 100 shares of the same company at reduced price of Rs.100. Then total shares you have is 200 and money invested is Rs.30000, which implies that the your investment cost on each share is now Rs.150. Avearaged out price reduces your loss and increases your chance of profits. This is what precisely happening now in the market, mutual funds and other institutional investors will buy more in the crashing time. More buying leads to more demand that leads to increase in share price again. Sensex will recover after every crash. Buyers wont buy insanely after crash and will think on the ideal price of the scrip (that is an another funda on its own). This fixing of correct price for the scrips is termed as market correction.

 

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