Impact on other asset class in case of massive crash in equity markets

General
1

What will be the aftermath of a massive (60-70%) crash in equity markets of india? How will it impact real estate or other businesses

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2

A 70% crash on Nifty based on the present value 18295 would be approx 6,000.

In March 2020, the market crashed and Nifty was 8,660. You could do some research during that time to find out how other asset class faired during that period.

Although not relevant to your question, one comparison which I can quote is

My NPS portfolio fell by 0.50% whilst my direct equity portfolio fell by around 25%. NPS had 50% equity, Debt and Gilts.

Wonder the price of Gold during March 2020.

3

~14.5% fall for that time period. Then kaboom up.

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4

Yeah covid fall will look like a bump on the chart in a few years, recovery was too quick and too outlandish. What i wanted to know is what if crash like 1929 happened or 2008.

5

Yes. Did not realise that there was a crash in 2008. Just started knowing stock market since 2008 so did not even know this.

From charts it seems nifty peaked 6,200 then crashed to 2,948. One thing for sure, It was Icici Direct who started online buy/sell of shares in 2007 (I think they were the first), so it could be mostly the old way of buy/sell of shares during 2008

6
  1. Anything can happen.
  2. In short term if there is flight of money from Indian assets, perhaps gilts could suffer too. Not sure, this might depend on how much FIIs hold and intensity of selling.
  3. But there is a decent chance that long term gilt might have some negative correlation with equity over longer period. If there is recession, then rates come down = good for gilts and this might balance equity fall a bit and we can then balance the portfolio and move some back to equity. But this might not happen or be delayed if we have recession + high uncontrolled inflation ( say oil spike ? )
  4. Short term debt with no credit risk should not be affected much other than temporary and minor hits in extreme cases. ofc, rates might come down and as we saw recently, real yields can actually go negative or very low.
  5. Credit risk funds logically could be in trouble, especially if we have a prolonged recession and companies start failing. NO idea how this has worked in past, 2020 recovery was very quick.
  6. Gold is supposed to have some negative correlation with equity. ofc in extreme panic situation, it might be all about money flows.

I am no expert in this, you may want to check All season funds type portfolio and see how they divide capital into different assets at different times. They also have commodities as part of portfolio.

7

If equities crash by that much, we are most likely screwed as a nation.

I’m saying this because the biggest disruption of the century caused a 35-40% dip that too for 2-3 months.

8

For most of the retail investors there shouldnt be any direct impact as these stock values are just numbers for them. Will they have the stomach to continue holding is another question.

But for people who have taken loan against shares (equity) will get a margin call and might be snowballed into bankruptcy.

Investment advisories, brokers, bankers may all be pushed to insolvency as the volume will nose dive & lot of bad-debt will rise.

but for people who hold cash could buy things at a great discount, once in a 100 year opportunity.

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9

I entered stock markets during this crash - you dont remember the satyam computers scam ?

10

I heard of this mega news, It was only news for me as I was not very active in stock market.

11

Yes, you said right. If really it would have to happen, there must be a great calamity which would for sure include government, some type of scam or an internal fued in the country. 30-40% , in worst cases 50% is what could be said to be a downturn or a valuation correction. If it goes to 70-75%, it would mean that not only FIIs but also the common people in india have lost trust in the growth of country.
Companies would be defaulting on their bonds, LIC and other insurers will have nothing to give to people they insured, even govt. could default. You see even pakistan’s market has not eroded so much when the country is on the verge of collapse…
In any such case the only assets that would suffice for a common person would be their home, land and physical gold. even digital gold could go zero as who knows the broker got bankrupt…
Only companies with very high cash flow will be able to sail through it. And for sure that number would be very less. And even if everything goes good afterwards, it would take atleast 4-5 years to come to 1% gain…

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12

forgot to ask you - why do you think there is going to be a huge crash?

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Oh no reason, i don’t think there is going to be crash, i just thought it’s an interesting thought experiment

14

A massive bull run to follow. :clown_face:

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15

The mother of all bull markets.