Tracking The Bear

The Indian equity market has been in a bear’s grip for 20 months now. How much longer will this last? To what low can prices fall? We analysed market corrections since 1979 to get some answers

- Lokeshwarri SK

Of all the animals that stalk the corridors of the stock market, the bear is perhaps the most feared. Not without reason, for it can wreak havoc with investors’ portfolio, shake the confidence of policy-makers and instil a feeling of gloom all around.

For some time now, investors in Indian equities have been asking the question: “Are we in a bear market?” The condition of investors’ portfolios reeks of a bear market, but the benchmark indices signal otherwise.

Unfortunately, there is no standard definition of a bear market in the stock market lexicon. The most widely followed rule to identify a bear market is when market benchmarks decline 20 percent from their peaks. Going by this definition, Indian equities are not in a bear market. Despite this deviation, we believe that the bear has been controlling the Indian equity market since the beginning of 2018; for 20 months now.

That brings us to the next few questions: How long will this bear market last? What will be the extent of wealth erosion for investors? Which category of stocks show more resilience in such intense downturns?

Forecasting the market’s direction or movement is a near-impossible task. But thankfully, history tends to repeat itself in stock markets, resulting in similar patterns evolving in price movements across time periods. Studying empirical data, therefore, helps shed some light on future movement. We analyzed price behavior in previous market declines, since 1979, to find some guide-posts to help us navigate through this difficult phase.

The beginning