Market Crash: Is This Like 2008 All Over Again?

  • Market Overview

With respect to stock market fall, a lot of comparison is being drawn to the kind of crash we saw in 2008. So we decided to pick up the monthly chart in order to compare this fall with what we saw in 2008 and a later correction we witnessed in 2010-11. Chart below:

stock market crash

This is a monthly chart, so here are some facts to glean from this chart:
2008: In 9 months Nifty 50 crashed by 4094 points which is close to 65%. Rally began from the next month. But if u look closely one can also say that the market rally that began from the 14th month didn’t look back. So one can argue market was in correction for 13 months.
2010-11: In 13 months Nifty crashed by over 1800 points (close to 28-29%). Rally began from 14th month. So one can say that market stayed in correction for 13 months.
2015-16: This is the 10th month. Market has crashed by close to 1800 points (close to 19-20%).

Looking at this some analysts have said they expect markets to bottom out in April (which is when we complete 13 months of market fall) and by looking at 2010-11 percentage fall they are also expecting for markets to correct further. But, it is not uncommon to see the corrections to match in amplitude terms too rather than percentage return terms. So some analysts (including us) feel that in terms of quantum of correction we are already in a zone where we satisfy the amplitude requirements of correction and we should be wary of expecting much lower levels. Hence, we should be careful about getting caught short in an un-expected rally.

While there can be uncertainty about where this correction might end, few conclusions look certain:
A. When compared to 2008 crash, the 2015-16 crash has only been a disappointment, specially if you look at distance market traveled in comparable time.
B. Also there seems to be more similarity of this fall with the 2010-11 fall rather than 2008 fall.

So is a 2008 like crash still possible? It is certainly possible, for there is very little limitation with respect to what can or cannot happen in the financial markets. But from what we have seen so far, it looks unlikely.

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