Arthgyaan

Supporting everyone's personal finance journey

5.93% Fall in the Nifty: What Does Election Result Day Teach Us about Risk in Our Portfolio?

This article talks about the volatility in the stock market on 4th June 2024, which was the day of election results.

5.93% Fall in the Nifty: What Does Election Result Day Teach Us about Risk in Our Portfolio?


Posted on 05 Jun 2024
Author: Sayan Sircar
11 mins read
šŸ“¢Join 2700+ readers on WhatsApp and get new post notifications!

This article talks about the volatility in the stock market on 4th June 2024, which was the day of election results.

5.93% Fall in the Nifty: What Does Election Result Day Teach Us about Risk in Our Portfolio?

This article is a part of our detailed article series on Election 2024 and the following market gyrations. Ensure you have read the other parts here:

šŸ“š Topics covered:

What happened to the stock market on 4th June 2024?

This article is a continuation of last weekā€™s post: Navigating Election Uncertainty: Should You Sell, Hold, or Buy More Stocks?

Stock Market Movement on 4th Jun 2024

On 4th June 2024, we saw volatility that we had not seen since the wild fluctuations in March 2020 (12.98% fall in the Nifty 50 on 23-Mar-2020) during the COVID-19 crisis.

Stock Market Movement on 3rd Jun 2024

This market event follows the market movement of 3rd June 2024 when both the Nifty 50 and SENSEX touched lifetime highs.

Nifty 50 Lifetime High 3 Jun 2024

Interestingly, considering the closing price of 22,530.70 of the Nifty 50 on Friday 31st May, the closing price of Tuesday 4th June of 21,884.50 is just 2.86% lower. That is a very common occurrence. It is just the yo-yo behaviour on Monday and Tuesday that is uncommon and needs something like election results day to happen.

What does this mean for your portfolio and how do you deal with portfolio risk?

What is risk and what is volatility?

In the context of your portfolio, we need to understand what risk is vs. volatility:

Risk: you cannot meet your goal

Volatility: your portfolio value goes up and down

What the stock market demonstrated on the 3rd and 4th of June 2024, a sharp rise followed by a sharper fall is a classic example of volatility.

If the stock market keeps falling and does not recover for the next few months/years, it can create risk in your portfolio. If you were planning to sell equity for some goal (house purchase, college admission fees, retirement expenses and are forced to sell equity at a low level then that is a risk.

Why?

Forced selling at low levels is a permanent loss of capital. Volatility is a changing number on a screen or printed on your portfolio statement. Risk is being unable to buy a 3-BHK house, and settling for a 2-BHK house since the stock markets fell 20% when you needed to pay the seller.

To understand what you should do if your portfolio has fallen a lot:

Did you know that we have a private Facebook group which you can join for free and ask your own questions? Please click the button below to join.

Why reading about volatility is different from experiencing it?

A lot of traditional (print/books) and social media (YouTube/X/Facebook) espouse that small caps are riskier than mid-cap which are in turn riskier than large caps.

That is true from a theoretical perspective.

Index Movement on 4th Jun 2024

But, real life throws up certain curveballs like the Nifty Next 50 index (consisting of the 51st to 100th largest stocks, as per free-float market capitalisation) falling more than the Small Cap 250 index.

However, many investors have not seen this level of volatility since 23-Mar-2020 when the market fell by 12.98% as the below table (for trading since 23-Mar-2020) shows for the worst 10 one-day falls:

Worst 1D fall Date
-12.98% 23-Mar-20
-5.93% 04-Jun-24
-5.74% 04-May-20
-4.78% 24-Feb-22
-4.38% 30-Mar-20
-4.00% 01-Apr-20
-3.76% 26-Feb-21
-3.53% 12-Apr-21
-3.43% 18-May-20
-3.14% 21-Dec-20

Depending on your experience of bear markets and associated volatility, you will react differently. In fact, this was the 29th worse 1-day fall since 1990 using the same dataset.

Row Worst 1D fall Date
1 -12.98% 23-Mar-20
2 -12.24% 17-May-04
3 -12.20% 24-Oct-08
4 -11.77% 28-Apr-92
5 -11.07% 12-May-92
6 -8.70% 21-Jan-08
7 -8.54% 06-May-92
8 -8.46% 31-Mar-97
9 -8.30% 12-Mar-20
10 -7.87% 28-Oct-97
11 -7.87% 14-May-04
12 -7.61% 16-Mar-20
13 -7.43% 11-May-92
14 -7.42% 17-Apr-99
15 -7.09% 05-Oct-98
16 -7.07% 15-Oct-90
17 -6.95% 04-Apr-00
18 -6.77% 18-May-06
19 -6.66% 11-Nov-08
20 -6.65% 10-Oct-08
21 -6.48% 11-Oct-90
22 -6.43% 10-Mar-92
23 -6.32% 12-Nov-90
24 -6.31% 07-Mar-91
25 -6.18% 07-Jan-09
26 -6.11% 13-Mar-01
27 -5.96% 17-Oct-08
28 -5.94% 22-Jan-08
29 -5.93% 04-Jun-24
30 -5.91% 24-Aug-15

Related:
How many bear markets have we seen in India?

Do you check your portfolio daily?

The above discussion brings out the point of portfolio reviews.

ā€œIf a tree falls in a forest and no one is around to hear it, does it make a sound?ā€ is a philosophical thought experiment that raises questions regarding observation and perception. (Wikipedia)

Similarly,

If you didnā€™t check your portfolio value on 4th June, did it really fall?

Or rather, if you didnā€™t know your portfolio value on this date, did it change anything regarding your long-term goals?

Therefore, it comes to the individual investorā€™s own perspective and risk appetite. You need to decide if:

Also read
How to plan tax deductions for salaried income?

How to profit from such sharp falls?

For those investors who want to make a quick buck off such market movement, and have a bit of cash available, buying ETFs, which move up and down closely tracking the indices, can be an option. Only do this if the ETF is trading close to iNAV. As the screenshot below shows, the best ETFs are those which traded closest to the underlying Nifty 50 index and closed closest to -5.93%. The others should be avoided.

Nifty 50 ETF 4Jun2024

You cannot do the same in mutual funds since you will, in the best case, get the same-day NAV only if money reaches the AMC by 3 pm. Otherwise, you will get the next dayā€™s NAV.

Do you have a financial plan in place?

At any time, if you panic and sell your shares or mutual funds, you will convert a paper loss (measured by volatility) into a real risk.

This is the important point:

What about your investments that fell?

Here is a follow-up post on this topic: Worst mutual funds of 4th June 2024: which mutual funds fell the most on election results day?

What's next? You can join the Arthgyaan WhatsApp community

You can stay updated on our latest content and learn about our webinars. Our community is fully private so that no one, other than the admin, can see your name or number. Also, we will not spam you.

To understand how this article can help you:

If you have a comment or question about this article

The following button will open a form with the link of this page populated for context:

If you liked this article, please leave us a rating

The following button will take you to Trustpilot:

Discover an article from the archives

Previous and next articles:

<p>This article lists all the mutual funds that fell the most due to market volatility on 4th June 2024.</p>
Market Movements Mutual Funds
Worst mutual funds of 4th June 2024: which mutual funds fell the most on election results day?

This article lists all the mutual funds that fell the most due to market volatility on 4th June 2024.

Published: 5 June 2024

7 MIN READ


<p>This article discusses the strategies needed to profit off sudden market falls like that happened on election results day on 4th June 2024.</p>
Market Movements
What do you need to make money when the stock market suddenly drops like 4th June 2024?

This article discusses the strategies needed to profit off sudden market falls like that happened on election results day on 4th June 2024.

Published: 9 June 2024

7 MIN READ


Latest articles:

<p>This article provides a list of fund and category-wise statistics of rolling return of SIP and lump sum investments for various mutual funds.</p>
Mutual Funds Market Data
What are rolling returns of SIP and lump sum of direct mutual funds? (July 2024 edition)

This article provides a list of fund and category-wise statistics of rolling return of SIP and lump sum investments for various mutual funds.

Published: 3 July 2024

3 MIN READ


<p>This article provides a solution for making credit card payments for banks that do not support BBPS from 1st July 2024.</p>
News
Calling CRED, PhonePe, PayTM and Amazon Pay users: if you cannot make credit card payments any more then read this

This article provides a solution for making credit card payments for banks that do not support BBPS from 1st July 2024.

Published: 3 July 2024

4 MIN READ


Topics you will like:

Asset Allocation (21) Basics (8) Behaviour (14) Budgeting (12) Calculator (25) Case Study (6) Children (18) Choosing Investments (37) FAQ (13) FIRE (13) Fixed Deposit (9) Gold (22) Health Insurance (6) House Purchase (34) Insurance (17) International Investing (13) Life Stages (2) Loans (21) Market Data (10) Market Movements (20) Mutual Funds (56) NPS (9) NRI (19) News (22) Pension (8) Portfolio Construction (53) Portfolio Review (27) Reader Questions (8) Real Estate (7) Research (5) Retirement (38) Review (20) Risk (7) Safe Withdrawal Rate (5) Set Goals (28) Step by step (15) Tax (63)

Next steps:

1. Email me with any questions.

2. Use our goal-based investing template to prepare a financial plan for yourself.

Don't forget to share this article on WhatsApp or Twitter or post this to Facebook.

Discuss this post with us via Facebook or get regular bite-sized updates on Twitter.

More posts...

Disclaimer: Content on this site is for educational purpose only and is not financial advice. Nothing on this site should be construed as an offer or recommendation to buy/sell any financial product or service. Please consult a registered investment advisor before making any investments.

This post titled 5.93% Fall in the Nifty: What Does Election Result Day Teach Us about Risk in Our Portfolio? first appeared on 05 Jun 2024 at https://arthgyaan.com


We are currently at 427 posts and growing fast. Search this site:
Copyright Ā© 2021-2024 Arthgyaan.com. All rights reserved.