Is a Nifty One-Day 2% Drop UNIQUE?

Is a Nifty One-Day 2% Drop UNIQUE? Many were panicked when yesterday Nifty was down by around 2%. Let us look into the past 25 years of data to understand the volatile nature of the stock market.

For example purpose, I have considered the Nifty 50 TRI data from 1999 to 2024. If we draw the graph of movement, it looks rosy as below.

Analyzing the graph presented above, one might conclude that Nifty consistently trends upward, presenting an optimistic outlook for investors. Nevertheless, the path of Nifty 50’s progression has not been without its challenges.

Is a Nifty One-Day 2% Drop UNIQUE?

We should examine the daily fluctuations of the Nifty 50 TRI Index over the past 25 years. This analysis will provide insight into the extent of its daily volatility. If we calculate the daily volatility of Nifty 50 TRI, then the graph looks below.

Upon calculating the total number of days within this entire period, we arrive at 6245 daily data points. In this context, let us examine the implications of a daily decline of 1%, 2%, 3%, or 5% from the preceding day.

Note that around 636 times Nifty was down between the range of -1% to -2% from its previous close. Same way, around 204 times Nifty was down between more than -2% to less than -3% from its previous close. If you combine in total less than -3% downfall, then it is around 840 times in the history.

Therefore, considering a decline of 2% or 3% and making impulsive decisions is not advisable. It is crucial to invest in equities solely for long-term objectives. Additionally, it is essential not to depend exclusively on the equity market to fulfill your financial aspirations. Incorporating other asset classes, such as fixed income, is necessary to mitigate risk and achieve a diversified investment portfolio. Ultimately, regardless of our assertions, including my own, no one can predict the future. In this context, diversification serves as our safeguard.