*

::At the outset, we don’t believe it has anything really to do with LTCG being reintroduced and therefore investors selling off.

*The drop is led by a drop in *global equity markets*

::Indian markets have fallen in line with global markets which started correcting last week. Most major markets have dropped 6-7% as can be seen from the chart.

The US stock market sell-off on Monday: First, the slide in the US market wasn't caused by anything fundamental. Two, dealers say some computer-programmed trading sent Wall Street into a bizarre tizzy. Three, fear brewed over a number of issues, with the biggest being trepidation about rising interest rates even though US government bond yields actually were lower on the day. Fourth, some dealers blamed the US Fed for the market breakdown, or least the mentality that led to the selling climate.

*Why have global equity markets dropped*?

::There is a growing fear that inflation is likely to rise globally as economic recovery strengthens globally. This has led to fears of US Central Bank raising interest rates faster than was expected earlier. 10-year bond yield in the US have gone up from 2.4% to a high 2.8% in a matter of 15 days. So have global bond yields gone up in unison.

*Is this a reversal of the bull market*?

::We don’t think so. No bull market proceeds in a straight line. Frequent corrections of 10-15% are common place in long-term bull-markets.

Underlying reality is that the Indian economy is also recovering well. If one looks at double-digit sales growth of commercial vehicles, cars, airline traffic, cement sales etc - there are more green shoots of recovery showing up across different sectors of the economy. This bodes well for the longer-term outlook. Relative structural attractiveness of equities relative to real estate, gold and debt in the Indian context remains intact.

*What should investors do in such a situation*?

::Stay invested and continue to invest as nothing changes in the longer-term outlook. This just presents a better opportunity but trying to time markets and waiting for even better opportunities has proved to be usually counter-productive in the past.

Moneycontrol : Why did the US stock market sell-off on Monday?: First, the slide in the US market wasn't caused by anything fundamental. Two, dealers say some computer-programmed trading sent Wall Street into a bizarre tizzy. Three, fear brewed over a number of issues, with the biggest being trepidation about rising interest rates even though US government bond yields actually were lower on the day. Fourth, some dealers blamed the US Fed for the market breakdown, or least the mentality that led to the selling climate.Moneycontrol : Why did the US stock market sell-off on Monday?: First, the slide in the US market wasn't caused by anything fundamental. Two, dealers say some computer-programmed trading sent Wall Street into a bizarre tizzy. Three, fear brewed over a number of issues, with the biggest being trepidation about rising interest rates even though US government bond yields actually were lower on the day. Fourth, some dealers blamed the US Fed for the market breakdown, or least the mentality that led to the selling climate.Moneycontrol : Why did the US stock market sell-off on Monday?: First, the slide in the US market wasn't caused by anything fundamental. Two, dealers say some computer-programmed trading sent Wall Street into a bizarre tizzy. Three, fear brewed over a number of issues, with the biggest being trepidation about rising interest rates even though US government bond yields actually were lower on the day. Fourth, some dealers blamed the US Fed for the market breakdown, or least the mentality that led to the selling climate.