Thursday, February 10, 2011

Feels like a bear market?

I have been writing this blog since Feb 1 but those of you following me on CNBC-TV18 would know that I have been bearish about the Indian market since the beginning of January. I have received a lot of mails and messages on linked In, asking me if this is a bear market. Those mails have led me to do some research on the same. So I would express my sincere thanks to those who wrote to me.

First up, let’s define a bear market – everyone has their own definition of a bear market and to me, any asset class, any stock, any index is in a bear market if it falls over 30% from its bull market peak. Till then, it’s a bull market correction. And that’s the number I have arrived at after looking at the past data of Indian markets. Now I believe one should not be a slave of the history but at the same time, one ignores history at his/her own peril.

The Nifty made an intermediate high of 6338.50 on November 5th. Taking this 30% parameter, the number that I arrive at would be 4437. So let’s say a ballpark of 4400-4500. We are currently at 5200 and change, so still some way to go before that bear market trigger is hit. For the record, Nifty is down only 18% from its recent peak.

What is more interesting is that only 8 of the Nifty 50 stocks have fallen 30% or more. So these 8 stocks are in a bear market of their own. This list is headed by the ADAG group. In fact the top 3 losers are Reliance Capital, Reliance Infra, Reliance Communications and throw in a Reliance Power at number 8. And couple of others like DLF and JP Associates never really participated in the bull market, so them being in a bear market is of little or no significance. It leaves L&T as the only bluechip stock which has entered a bear market with a 31% fall.

However, do keep any eye on stocks which are down 20-25% as some of them are pretty influential. SBI is down 26%, ICICI Bank is down 25%, ONGC is down 20% and all these stocks are in serious danger of falling in a bear market. Reliance Industries too is approaching a 20% fall mark. Not a great sign for the bulls.

Keep in mind, in the last bear market, the Nifty fell 58%, and that does not mean it fell 28% more after falling 30%. It fell 40% MORE after already falling 30%. Yes, do the math, that’s the beauty of a lower denominator. So keep in mind that a bear market can completely wipe you away. And if the markets do approach the bear market triggers, it’s not a great idea to take the plunge as the fall after that can be equally devastating.

And one fact is clear. The broader market is clearly in a bear market of its own. 50% of the listed stocks on the NSE are down more than 30% of their recent peak, that’s serious. What’s worse, 11% of the stocks have halved and innumerable stocks are trading at their 52-week lows. And this list hurts as this is the space around which a lot of retail investors’ portfolios are centred.

Conclusion: Just one final word before I end this piece. Don’t make the mistake of buying stocks only because some of them have fallen 40-60%. The best example I have for such investors is Unitech in the last bear market. I remember when Unitech fell 50% from it’s peak, a lot of analysts/wise men/brokers started recommending the stock as a great value Buy. It fell 50% more from that level (Overall fall of 75%) and again few investors took the plunge. Then it fell another 60% (overall fall of 90%) and that’s where the consensus emerged that the stock has finally bottomed out. Too bad for the consensus view, it halved from there as well to complete a 95% slaughter. On the other hand, Hero Honda was the only stock that came out of the bear market unscathed and doubled the following year. This time around, the only index stocks that have gained even during this painful period are HCL Tech, Infosys and TCS. One can never say that these stocks will continue to outperform, but my gut feeling is they will.

Disclaimer: The author of this article does not invest/trade in stock markets including derivatives. His only exposure to stock markets is via the stock options of TV18 and Network18 given to him by his company as part of his compensation


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  2. Good work Mr. anuj. U R an UNSUNG HERO in TV18 group. Goodluck in your future.

    Nagaraj kumble
    Investment Advisor

  3. Thanks for another detailed analysis. Its been great to follow your blog. Wanted to know if India can enter a bear market when other major global markets (except maybe China) are touching multi - year highs. As far as I know bear markets in India have generally been in tandem with the other global markets (at least in the last decade or so). So is India getting decoupled from the other major global markets ?

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  5. very detailed & truly interesting analysis

  6. I love the whole narration and dealing of such a "emotional" topic for investor public at large. I reviewed sensex for past 12 years and if I were to conclude is that unseasoned investors (like me) shall exit market in Jan begining and reinvest in Apr/May every year (fund switches for ULIP holders).

  7. Hi Anuj, its great to see you on this blog. Please share your views as often as you can.
    With almost half of small caps and mid caps at 52 week lows or 2009 lows, it is a bear market for those stocks. It started in Sep 2010, when FII money started pumping up the Nifty stocks, and investors started abandoning midcaps/smallcaps for the Nifty stocks. Now the Nifty stocks have fallen too, leaving most investors no place to put their money. I feel one should buy highly undervalued stocks now; which are in midcaps/smallcaps with high dividend yields. They will move up later and they have to move up whenever we have a genuine bull market.

  8. To add to the above comments

    The so called all time highs of DOW and other Developed mkts are result of QE1 , QE2 both of which are postponing the inevitable and If at all Fed comes with QE3 then god knows what will happen to the value of USD in long run