Market Crash: How To Ensure Financial Stability During This Turmoil?

Domestic benchmark equity indices Sensex and Nifty suffered a sharp setback on Monday, plunging over 5% in early trade. The sell-off followed a significant drop in US futures, triggered by United States President Donald Trump’s announcement of tariffs late last week. 

The 30-share Sensex nosedived 3,939.68 points to 71,425.01, while Nifty slumped 5% to 21,743.65. Despite the steep fall, India emerged as the second-best performing market in Asia for the day.

Trump’s move, which includes a 34% tariff on Chinese imports, 26% on goods from India and 20% on imports from the European Union (EU), has rattled financial markets across the globe. 

Market crashes can rattle even the most seasoned investors. They often lead to panic-selling and financial anxiety, but history shows us that markets do recover. The important thing to do is to stay calm, review your financial position and make choices to ensure long-term stability.
Here's how to weather the storm and protect your finances.

The first and most important rule during a market crash is not to panic. Emotional decisions often lead to poor financial outcomes. Selling your investments during a crash might lock in losses that you could have recovered from with a longer investment horizon. Market crashes are a normal part of the economic cycle, and over time, markets tend to bounce back.

An emergency fund acts as your financial safety net. It should cover six to 12 months of essential expenses. If you don’t have one yet, consider building it gradually. This fund can help you avoid liquidating long-term investments during a crash.

In times of financial uncertainty, it’s wise to tighten your budget. Categorise your expenses into essentials and non-essentials, and identify areas where you can cut back temporarily. Redirecting discretionary spending towards savings or emergency funds can strengthen your financial position during a crash.

If all your money is tied up in one asset class, such as equities, your portfolio is more vulnerable to market volatility. Diversification across asset classes like bonds, gold, fixed deposits and mutual funds can reduce overall risk. Rebalancing your portfolio is a good way to stay aligned with your long-term plan.

A sharp market correction can be compared to a clearance sale — stocks that once seemed overpriced are now available at much lower valuations. For investors with a long-term horizon, spare funds and a healthy risk appetite, this downturn could actually present a golden opportunity. If you're financially secure and able to withstand short-term volatility, this may be the right time to start building or adding to your investment portfolio with stocks at discounted prices.

If you’re unsure how to proceed, seeking help from a financial advisor or expert can be valuable. They can assess your current financial health, risk appetite and goals to provide personalised advice. A professional perspective can help you avoid knee-jerk decisions and maintain clarity during uncertain times.