If you are an investor in the stock market, the happenings of the last few days must have caused a lot of concern. Remember the black Tuesday of January 22 when the market plummeted by more than 11 per cent during the first few minutes of trade. Nervous sellers pushed the panic trigger, sending the markets into a free fall, until it hit the circuit breaker, which automatically caused all trading to come to a halt, both, at the BSE and NSE. The 30 stock Sensex lost almost 2273 points during the day, before some value buying made it recoup some losses. Finally, it closed the day at 16,729.94 points, still down by 875.41 points. The outlook for the share market seems to have changed overnight. Let’s take a look at the prime factors responsible for such a drastic fall in the markets.

Fears of a recession in the US

One of the biggest reasons for the heavy duty fall in the markets is a fear of recession in the US economy. The global investment climate has changed with the impact of the sub-prime crisis in the US mortgage market taking its toll. Big investment banks and conglomerates are declaring huge losses and investors’ confidence is completely shaken. There is a saying that when the US sneezes, the whole world catches flu. No wonder that most of the economies are having inter-linkages with what is happening there. The after effects are felt in our markets also as the negative impact on IT companies, BPOs, KPOs, export oriented units and other sectors are feared in the long run.

Huge selling by FIIs and hedge funds

Hedge Funds and Foreign Financial Institutions (FIIs) have also started selling in our markets. This is because they want to reallocate their investments and book profits to cut their losses due to the economic meltdown. The volatility of financial markets seen today is the result of continuing and heavy selling pressure by investors of all classes due to uncertain times and events.

There are a multitude of investment options in today’s financial world. However, equities still remain one of the most profitable ways to invest your money. As surprising as it may sound, the fact is that a large number of investors have no shares in their investment portfolio. It can be for a variety of reasons. The main reason cited by many is that they simply do not know how to pick a good share. Picking a good share at a good time is the key to success in the share market. There is no reason though that you cannot turn yourself in to a seasoned investor yet!

Reversed fortunes:
Companies are just like people. Sometimes they go through a rough patch and sometimes they get a break. Listed companies lead a very public life, so keep your eyes and ears open and you will know when a company’s fortune is headed for an about turn. Read the balance sheets while doing your research. If you find that the company’s losses are declining steadily and it is showing consistent signs of improvement, you may consider purchasing the shares of such a company. Do not be swayed by sudden changes, as it could be detrimental.

Mergers and Acquisitions:

The economies of scale, better synergies etc. are all the buzzwords you hear around a merger. It is true that mergers do create new opportunities for investors. During mergers investors are provided with a chance to get more value and often after the merger better administration of the company does provide good results.

International factors:

Just consider the rising cost of fossil fuels and petroleum products. This is an international trend that has an implication on several industries. As an example, the airline industry suffers from the rising cost of aviation fuel but at the same time oil retailing companies the world over make a steady profit. Keeping a sharp eye on the global trends today is a necessity if you want to invest in the stock markets. It may help you pick up better stocks in this global economy.