Why does the stock market fall in an economic crisis? What should be the investment strategy in recession


Should an investor invest money in the recessionary stock market or not?
If the profit margin does not increase, the stock prices also start to fall.
If there is a fall in the stock market for any reason, there is a good opportunity to buy the stock.

New Delhi. Even if the stock market is rising, investors are afraid to buy or not, because the market can fall at any time. And even if the market is continuously falling, investors are afraid, they don’t know how far it will fall? When there is an economic slowdown, there is no level of decline in the market. There is no fixed duration of recession.

Often this situation will also present itself to you. Today we will help you understand this complex topic. The big question is whether an investor should invest money in the stock market going through a recession or not? Will it be safe to invest in the fall?

Also read – What is economic recession? How does a country decide to be in recession? what is the scale

To understand the state of the stock market crash, you need to understand the festive sell-off in the market. In a falling market, almost all stocks are for sale, meaning they are getting less than their original price. But just as you don’t buy everything just because you can get everything cheap at the holiday sale, so it’s not a good idea to buy every stock at the time of the stock market sale.

Why do stocks fall in recessions?
It is quite easy to understand. During a recession, people control their spending. They end up saving more than spending more. Due to this, companies do not make good profits and their revenues do not grow. When its revenues or profits start to fall, the company stops many of its tasks, such as expanding its capacities or stopping excess capacity. When the business of the companies stops and the profit margin does not increase, the stock prices also start to fall.

Also Read: ‘Recession’ Has Hit America, With Growth Rate Below Zero For Second Consecutive Quarter

Apart from this, foreign investors, who have invested a lot of money in the stock market, also do not want to take much risk in the falling market and withdraw money from the market. As foreign investors start getting good interest rates here, they park the money for interest or invest it in gold and silver considered safe haven for investment.

Economic recession is an investment opportunity!
One thing that is always on the minds of long-term investors is that the economic slowdown cannot last forever. As the economy emerges from recession, so will the positivity in the stock market. So, whenever the stock market falls for any reason, there is a good opportunity to buy the stock.

Now you must also be thinking that it is okay to shop in the fall, but when to shop in the fall as well. What is the guarantee that the decline will continue that far or that the market will not fall further? So for your information let us tell you that no one can know where the market will fall and from where it will rise. But if your vision is to invest for the long term, you can start picking up small stocks in the fall. By goods it means shares.

One more thing to keep in mind here is that the best strategy for investors to invest during a recession is to invest in companies with low debt that also have good cash flow and a strong balance sheet. On the contrary, shares of highly leveraged, cyclical or speculative companies should be avoided.

Also read: All the big news from the world of business, including the stock market, gold and silver

2 types of investment strategies
Equity investment fund: In this strategy, instead of trying to invest directly in stocks, investors can choose to invest through mutual funds. When the stock market recovers from a recession, the recovery is usually extensive. In other words, many stocks rise simultaneously. It is preferable to invest in diversified mutual funds as investors can benefit from such a massive recovery rather than betting on a select few stocks. The returns of this strategy are the best. There is also a factor in its favor here that mutual fund houses do not invest money in bad stocks.

Invest in shares directly: This strategy is only good for those investors who have adequate knowledge of the stock market. Those who know how the stock market works and what causes price fluctuations. It is also suitable for investors who have a high risk appetite or ability to absorb losses without financial problems. These investors are also aware that some sectors of a bear market recover more quickly than others. For example, companies in sectors such as consumer, pharmaceutical and healthcare are always in demand and recover quickly. Similarly, smart investors avoid cyclical sectors like real estate, where the turnaround period can be long.

Tags: business news, Business News in Hindi, investment, Investment and profitability, Stock market, Stock tips

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