More dips ahead suggest bearish phase, going by major falls since 2008

Domestic brokerage firm Motilal Oswal Financial Services in its April 2020 India Strategy report also struck a cautious note
Indian markets could well see more falls before a sustained rise signals the end of the bear market — at least if the past is any indicator.

Each of the major falls since 2008 has seen the market rallying before falling again, and repeating the process multiple times before finally reversing losses.

There were four such instances during the global financial crisis in 2008-09, five during the 2011 Euro crisis, two during China’s 2015 currency devaluation, and three during the taper tantrum, noted the data from foreign brokerage firm Jefferies India.

The 2008-09 period saw dips ranging between 18 per cent and 45 per cent. The Euro crisis had five double-digit declines between 10 per cent and 17 per cent. The 2015 China decline twice fell 11-12 per cent. The taper tantrum was relatively mild, with three dips of 8-9 per cent.

The dotcom bubble burst in 2000-01 with four dips of 25-30 per cent. There were rallies of 17-25 per cent in between these falls during the burst of the dotcom bubble, noted the April 19 Equity Strategy report authored by equity analysts Mahesh Nandurkar and Abhinav Sinha.


The coronavirus disease (Covid-19) scare has caused the stock market benchmark to decline more than 20 per cent — the technical threshold for a bear market. The S&P BSE Sensex fell 38.1 per cent from its 2020 closing high of 41,952.6 to 25,981.2. It has since risen over 21 per cent.

“...a near-term correction seems likely, though our 12-month market view remains optimistic. Second, analysis also shows that the stock performance trend changed for nearly half of Nifty stocks after the first bear market rally. If a similar trend change happens now, global plays may benefit,” said the Jefferies report.

Domestic brokerage firm Motilal Oswal Financial Services in its April 2020 India Strategy report also struck a cautious note. It expects market volatility to remain elevated, even as the movement would depend on factors, including global and domestic policy action. Earnings are expected to take a major hit. It revised its earnings estimates for the bellwether Nifty50 companies by over a fifth for the financial year ended March 2021 (FY21).

“The earlier expectations of a sharp earnings revival in FY21 now stand belied,” said the report.

ICICI Securities in its April 17 India Strategy report suggested that the central bank action could cushion the downside. “We expect liquidity measures by central banks to continue till stability returns to financial markets, which should ease redemption pressure due to liquidity concerns and thereby limit asset price decline. However, growth concerns due to Covid-19 will keep equity flows and risk assets under check,” said the report authored by research analysts Vinod Karki and Siddharth Gupta.

The S&P BSE Sensex ended on Monday at 31,648. It is up 21.8 per cent from its lows. The rise now rivals those seen after declines during the global financial crisis and is close to reversals seen during the dotcom bubble.

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