Lesson 7.1: Understanding Market Risks
Every investment carries risk. In equities, risks come from multiple sources:
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Market Risk (Systematic): Broad market declines affect all stocks (e.g., election uncertainty, global recessions).
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Company-Specific Risk (Unsystematic): Issues unique to one company (e.g., poor management, fraud, scandals).
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Liquidity Risk: Difficulty selling a stock without affecting its price. Common with little-traded NSE counters.
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Currency Risk: For foreign investors, exchange rate movements affect returns.
Example (NSE):
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During the 2008 global financial crisis, the NSE 20 Share Index fell sharply, even for strong companies — a case of market risk.
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The collapse of Uchumi Supermarkets in 2006 showed company-specific risk.
Key takeaway: Risks can’t be eliminated, but they can be managed.