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Anatomy of bear markets

SMARTSHARE

Vinod K Sharma  |  New Delhi 

% FALL

1993

1996

1998

2001

AVRG

2008

SENSEX

54%

41%

39%

56%

48%

29%

= or > 80%

-

7

2

3

3

-

> 50 < 80%

17

12

12

7

12

3

> 20 < 50%

11

5

12

16

11

16

> 0 < 20%

2

4

0

2

2

7

POSITIVE RET

0

2

4

2

2

4


But stocks don't fall in one motion. Their long downward journey is interspersed with brief halts and at times those misleading upward charges, which taper off before you yell "yahoo!" But if your are looking at the quarterly numbers to tell you to sell that stock, you will never get an early signal. By the time it shows up in the results, it might be too late. Let's go back to the heady days when tech was king. It's April 2000 and Infosys has just come out with its quarterly results. It has, as usual, bettered market expectations and reported a net profit growth of 99 per cent YoY and 16 per cent QoQ. For the next four quarters it will go on to report a growth of 100 per cent and 41 per cent, 134 per cent and 27 per cent, 125 per cent and 8 per cent, and finally 111 per cent and 9 per cent, YoY and QoQ respectively. With each passing quarter, Infosys kept on giving better results and the stock price went on tumbling. With an increase in the EPS each quarter and accompanying falling prices, Infosys became more attractive to the fundamentally minded, till the management gave a guidance for the full year that was lower than market expectations in April 2001. Infosys had already fallen 73 per cent from its peak and then it was too late. By late October 2001, Infosys had fallen 84 per cent from its peak in March 2000. And if you thought only new economy stocks were the ones to be hit, think again. Mahindra and Mahindra fell more than 90 per cent during the 2000-2001 bear phase. To get a fuller picture of the escapades of bears, I studied the last four bear markets we have seen in our markets since 1990. The Sensex loses around 48 per cent of its value in a bear market. The smallest fall of 39 per cent was in 1994-96 and the largest, 56 per cent, in 2000-2001. On an average around 3 or 10 per cent of Sensex stocks fall more than 80 per cent. And around 15 or 50 per cent of the total 30 fall 50 per cent or more, while 2 stocks from the Sensex manage to keep their head above water during a bear market. In the ongoing market, the Sensex has just tumbled 29 per cent, a far cry from the average decline of 48 per cent. So far only 3 stocks have fallen more than 50 per cent. The average is around 15 and the range is between 10 and 19 stocks. So even if you were to consider the lowest of the range, you still have 7 more stocks to see that kind of a fall. More importantly, the average duration of a bear market has been around 18 months. We are barely in our sixth. Have patience and keep your risk appetite intact.

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First Published: Sat, June 21 2008. 00:00 IST
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