Every bear market has a character of its own. In my own long career, I have experienced the following bear markets.
1986-1988
The rise to the dizzying highs (relatively speaking of course) of June 1986 was the first real bull market that I experienced. The bull phase was after Rajiv Gandhi was elected PM following the shocking assassination of his mother. The market, at this stage, had NO institutional participation (except for some buying by LIC). Hence, it was almost completely retail trade oriented. The fall from the high was severe because the Rajiv govt fell and the good times ended but there was no one to buy. The low of the Sensex was 390 in March 1988. We all got trounced in this phase.
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1993-1998
This one followed the Harshad years. The texture of the market completely changed. If there was one thing that Harshad Mehta did, it was to educate us all that the markets are MUCH bigger than what we had all ever thought! It was also the phase when the FIIs entered and DIIs too became active. Therefore, this bear market was a more ranged one rather than a damaging one. Hence, I recall surviving this one without too much difficulty. My technical skills had got sufficiently honed by then and it came in handy.
2001-2003
The great Tech boom and bust that took its toll on other areas of the market too. A short bear market but a severe one too. Those that held on to Tech stocks were cleaned out. All Ketan Parekh stocks that had risen earlier to dizzying heights (HFCL, GTL etc) hit low single digits from four-digit prices! But the decline segued right into the big-time arrival of the FII players and this started a huge bull market lasting for about five years. Technical signals were shouting from the charts to exit the markets at that time and I did and saved myself from the subsequent bear market.
2008-2009
Even though this was a short duration one, it was a devastating one! The index got smashed some 50-60%! Can you then imagine the fate of stocks? It was as though Armageddon was upon us. Problem, for quite a while, was that no one knew what exactly was wrong and hence, solutions could not be instituted. As a result, stocks were smashed beyond recognition.
Even though fund activity was in full flow, they could do nothing to the avalanche of selling, especially owing to the absolute excess that had got built at the highs of Jan. 8. This bear market set up the biggest buying opportunity of all time and a lot of far-sighted people built their wealth by entering into this bear market lows.
Though I exited long before the decline set in, I completely missed buying the low even though the signals on the charts were very clear. The atmosphere was too daunting and scary and it required much courage to be a buyer. At that time, I couldn't muster up the courage.
2009-2013
You couldn't really call this a bear market- more like a bearish phase. The index had climbed back for a double top with the 2008 high and then stayed around there for nearly four years. During this period, we had a global financial crisis that had some ramifications in our markets. It ended with some extreme fear of Cap Gains tax at the budget of 2013, which didn't happen.
The short and swift bull market (2008-2009) and the consolidation since led to loss in confidence of many players (retail) and decent sized losses were incurred by many leading to even exit of players out of frustration, a classic bear market bottom signal!
2018-2020
From the lows of 2013 (Nifty 5300) began probably the biggest bull market till date. I do believe that the bulk of today's successful investors and market players all built their wealth in this period (some having started from 2003 or 2009 lows also). Stocks hit crazy valuations once again, especially mid and small caps and they just melted in the decline that followed. And then Covid came in to bury everything.
Again, like in 2008, no one quite knew what was going on and how it was all going to end. Hence, we had a similar washout decline once again. But as before, farsighted people looked at the precedents like the Spanish Flu epidemic a 100 years ago and how coming out of that, the markets in the US went into a mother of a bull market over there in the 1920s.
Well, it was no different here too as a multitude of factors created by Covid led to an avalanche of new money into a market where value was available for the asking! The 2020 low also produced a mother of all bull markets, with the Nifty rising 250% from its lows and enriching countless number of people by 2024.
2024 Onwards
We now come to the present. Again, the same story of unsustainable valuations in a rapidly expanding market (by size) on the back of consistent new money flow from retail investors. FIIs sold consistently but it has not had more than a marginal impact. So far. The DII buying has been more than a match for absorbing the FII sales.
What is the characteristic of the current bear market? It is unusually mixed. The earlier ones were all characterised by strong exits by retail and institutional participants. But this one is not. Indeed, this one is different, with substantial and continued flow from DIIs and the public (through SIPs). An earlier feature was that IPOs would dry up soon as the trends hit the skids. But this time we have an ever-increasing number and size of IPOs. This keeps widening and deepening the market size as it were. Makes one think that if the FIIs were not sellers over the past couple of years, we may not even have had a bear phase!
Why does this bear phase therefore seem so painful? It has to do with the kind of stocks that most of us hold. Retail traders typically load the truck with stocks that are in the Rs 500 crore to Rs 3,000 crore market-cap stocks. The market fell, seriously after December 2025. Before that, we saw a strong rally come into all strata of stocks from the Operation Sindoor bottom of April 2025. An examination of the stocks, using different buckets of market cap (starting from above Rs 1 lac crore and working progressively lower) shows that there was some level of recovery in the larger market cap stocks. This recovery ranged from 50-100% of the ground lost during the fall.
But when it came to stocks that were under the Rs 3,000-crore market cap, we find that instead of recovering from the 7th April 2025 low (where already 40-50% erosion had occurred), these stocks saw further erosion in value and now are reaching 50-60-70% erosion from the peak. In other words, there has been very little recovery and continued losses. And this is happening in the bracket where most retail investors are present.
Mind you, most investors thought they were buying into fundamentally good stocks. Some examples are stocks like IndusInd Bank (52%). Trent (44%), TCS (35%) and many more such popular names have taken a hit and not come back. These are large caps that I speak of. But when you come down the line, the stocks with market cap below Rs 3,000 crore or lower have actually continued to fall further.
This is where the current bear phase takes on similarity with the 2018-20 phase, where small and midcap stocks lost big time and many never ever came back. That one culminated with Covid.
But now, this Gulf War seems to be taking on a Covid-like uncertainty. People don't know what can happen next and also feel helpless about not being able to do anything about it. The fundamental variables seemed to be quite good, Q3 numbers actually showed an improvement and growth projections were raised. Suddenly, we have been hit by the Trump missile and it's not just us in India but everyone, the world over.
VIX has gone from a docile 9% to the current 28%. SIP, still at a very healthy pace, shows nil returns now for the second year running. Oil prices have shot up to $120 and are still climbing. Gas is another shortage story with the Strait of Hormuz blocked. The INR continues to weaken, picking up pace now on March 26 as it goes lower.
Altogether, these have created a very high level of confusion that can be compared to the Covid time or even to the 2008 time. There was excess speculative activity across the globe back in 2008 that led to the sustained decline. There was huge overvaluation back in 2018 in our markets that led to the declines. Right now, both elements are present too but controls are so much more in place so speculative activity is not taking a big toll. Valuations are correcting but the damage is slow because there is still so much money flowing to the market yet.
The slow but persistent decline despite the flow of money to the market is the key element of this bear phase. Also, the dichotomy between index performances and an individual's portfolio performance. Indices are composed of the best stocks and reshuffled to always include the best. Portfolios are seldom created that way. People's reluctance to book losses ensures that, progressively, a portfolio ends up with many more losers than winners. It reaches a point where the losses in some stocks are so large that they cannot be sold. But their continued presence in the portfolio and their continued decline keeps dragging the portfolio value lower.
For example, the worst drawdown is in Microcap (around 27%). But the lowest market cap in that index would be in the zone of Rs 4,000-5,000 crore. However, most portfolios have stocks that are, say, below a market cap of Rs 3,000 crore and going down all the way to Rs 500 crore. The average decline in these stocks is more like 60-70% and continuing.
So, in a way, this bear phase seems to be like the one back in 1986-88 and again in 2018-20. When there is a consistent decline that seems inexplicable to people, two things happen. They either run out of money (and SIP stops) or they run out of courage (and SIP stops). When that happens, the DIIs won't be faced with a mountain of cash coming in. And that creates a new problem of its own: they will no longer be able to easily absorb what the FIIs are throwing at the market. If recoveries don't sustain, then people lose their willingness to hold stocks and then they begin to sell. Even now MTF positions (leveraged buys) are still quite large. When hope dies, leverage takes a hit. When profits decline or losses mount, leverage gets withdrawn. That can start another loop.
All these play out slowly. It would be wonderful if all the above played out swiftly, like it did in 2009 or even 2013. Then, people get a chance to quickly rebuild their psyche. But a long drawn-out decline takes a toll on that psyche.
Looking ahead, it seems that everything is tied to the persistence of the conditions that are making people hopeful. The low inflation, the soft monetary policy, the improving corporate growth, the consistency in fund flow towards the market, the continued bullishness in global markets etc. The IEA spokesperson says that there is enough oil around so no shortage is feared. There is a hope that the Gulf war of 2026 will end soon and oil and gas will start flowing once again. That will soften any blow to growth prospects. Currently, our economy and the corporate sector is resilient enough to take a blow or two in its stride.
A quick termination of the Gulf War of 2026 holds the key, therefore. Prices of stocks that retail trade hold have reacted substantially. But the spirit is not broken yet, they have still not lost their nerve because there is hope that the environment is considerably better than the previous bear phases. As long as that holds, the chances are pretty bright that they will hold stocks and put in new money to work in the market.
This may take the form of a rise and consolidate and repeat type pattern across the rest of the year and that may lead to a gradual improvement in sentiment. It will require a change in our approach. We will have to turn completely bottom-up in our investing. We will have to incorporate some trading into our approach. We may see the extension of Algo trading, percolating to a larger percentage of traders and investors. We could see a greater percentage of mixed portfolios than pure play Equities.
Be ready for all these, is the only message of this bear phase.
Disclaimer: The views expressed in this article are solely those of the author and do not necessarily reflect the opinion of NDTV Profit or its affiliates. Readers are advised to conduct their own research or consult a qualified professional before making any investment or business decisions. NDTV Profit does not guarantee the accuracy, completeness, or reliability of the information presented in this article.
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