In stock market investment, we not only have to multiply our money but we also have to fight the risks in the stock market. These risks are caused by sudden events and these risks can come once in 10 years, once in 5 years or suddenly at any time.
In today’s article, we will describe some incidents that happened in the past or at present.so that investors can get an idea of such incidents and they can manage such risks for themselve
Systemic Risk
This type of risk affects the entire market. For example, economic recession, political disputes between countries, financial crisis, the biggest example of this is Covid-19, which caused the markets across the world to fall by 40% to 50%.
Interest Rate Risk
Interest Rate Risk: Changes in interest rates affect bond prices. Rising interest rates reduce the value of bonds, which in turn impacts fixed income portfolios. Also, rising interest rates are not good for the equity market.
We know that companies need capital to run. If the interest rate increases, the ROI of companies will decrease because they have to return more interest and this affects their profit.
Most of us would remember that when we were going through Covid-19, at that time governments suddenly started reducing rate cuts to avoid a possible economic recession, after which we saw that along with the US stock market, the Indian stock market also started moving towards heights.
Currency and Commodity Risk
The rates of currencies around the world, whether it is dollar or any other, always keep fluctuating and this keeps affecting the stock market.
We know that we import a lot of crude oil from abroad. In such a situation, if the dollar becomes expensive, then we or the companies will have to pay more money to buy it.
Some Indian companies like BPCL, HPCL or IOC have to buy crude oil at very high prices, due to which their input cost increases and their profit gets affected, due to which their share prices fall.