From Ketan Parekh scam to Covid: What 25 years of history reveals about ideal asset allocation during market downturns
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- The 2008 Global Financial Crisis was the deepest correction in the period, with the Nifty 50 Total Return Index falling 60% over 293 days and taking nearly 1,000 days to recover its prior peak.
- The Ketan Parekh scam and Dotcom crash triggered drawdowns of 35–39%, with recoveries stretching to 1,389 days and 923 days respectively.
- The Covid-19 crash was the fastest, dropping 37% in just 32 days but recovering in 259 days — far quicker than earlier crises.
- The US-Iran conflict-linked correction saw a 15% decline over 90 days, with the market yet to regain its previous peak.
- Higher debt allocations consistently cushioned losses: during the 2008 crisis, a 100% equity portfolio fell 60%, while a 50:50 equity-debt mix dropped 31% and a 25:75 allocation fell just 14%.
- The same pattern repeated across Covid-19, the Ketan Parekh scam, Dotcom crash, US debt ceiling crisis, China slowdown, and FII sell-off — Covid-era drawdowns ranged from 37% (100% equity) to 9% (25:75 mix).
Why it matters: For Indian retail investors, the data quantifies a concrete trade-off: during the 2008 crisis, adding 50% debt to a portfolio halved the drawdown from 60% to 31%, and during Covid-19 it cut losses from 37% to 19%. The same relationship held across nine distinct corrections, suggesting allocation choice — not market timing — was the dominant driver of downside protection.
