Why Correction Occured in Market?

In today's complex market universe, which  is integrated by technology, there is an interplay of several factors but  there is uniformity in the market's synchronistic movements. 

Both domestic and international factors or forces do impact the market with some markets leading the rest. 

As for the Indian market,  the following factors might be contributing to the market correction though, at the outset, it must be remembered that the stock market is a gauge of the Money Market and the inflow and outflow of money or liquidity factor plays a critical part in stock market behavior.

1) FII Outflow: The FII's are considered to be the Movers and Shakers of the market. Foreign investors are on a selling spree and, in this week alone, the FII's are reported to have sold nearly Rs.17,300 crores. This outflow of money is unlikely to re-enter or come back very soon.

2,) Market Switch: The last couple of months saw new (and large) IPO's & FPO's flooding  the market and this has resulted in a switch or transfer of money from the Secondary market to the Primary market. This type of market activity is similar to the exchanging of old notes for new one's in economic parlance, that is, the new shares drive out the old shares from circulation.

The primary market investors might be selling stocks in their portfolio to subscribe for new shares offered. Further, there is a tendency to borrow money to invest in new issues and the failure of new issues to list at a high premium would lead to nervousness resulting  in selling a part of the shares in the portfolio to meet debt commitments. 

The empirical data shows that the euphoria in the Primary market normally signals the end or suspension of a strong bull market rally which has been active from April 2020.

3) Decline in MF Inflow: The MF subscriptions in the form of SIP etc. is reported to have declined from Rs.10,000 crore/month to about Rs.5,000 crore/month resulting in churning of MF portfolio schemes by Fund Managers.

4) Volatility Index: On Friday, 2611/21, the US based CBOE Volatility Index saw a sharp jump of 28.62%. Correspondingly, the Dow Index opened sharply gap-down to close - 2.53%. The VIX  represents the fear in the market and is also called the fear index. The big brother still has a stranglehold on world markets and the fall in the US market will have a ripple effect on European and Asian markets.

5) Shaky Political Outlook: UP is one of most important state going for Assembly elections and it is important that the BJP does well in that state. It is expected that, if the BJP does not fare well in  the coming assembly elections, it may weaken it's position in the Rajya Sabha and force the government to go slow on reform measures. The recent withdrawal of Farm Bill's has sent a message that the government is peddling on a weak wicket.

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6) Technical factors: Finally, there is a clear breakdown in the main index charts and the market will take time to repair it's way up. While the price correction is visible (and sometimes unnerving) the time correction will depend on several factors and situations which are an evolving process.

"Markets are never wrong, opinions often are" Jesse Livermore

In such unpredictable times, it is better to play safe and invest wisely and thus playing intraday will give you max returns.