Are We in a Bear Market? - The 5 Minute WrapUp by Equitymaster
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Are We in a Bear Market?

Jan 19, 2016

In this issue:
» Share pledging at 7-year high!
» Realty sector: Is the office segment the space to be?
» ...and more!
Devanshu Sampat, Research analyst

We didn't choose this title to grab eyeballs. It is a serious question. The Sensex is down about 7% since the start of the year. It's down about 18% from its all-time high. Many markets around the world are down much more. Gains made over the last two years have eroded in the last two weeks. Investors are despondent.

'Share bazaar main aaj kal mazza nahi aa raha hai.' I hear something like this almost every day on the train. The aam investor seems to have lost hope. They entered the market after the NDA's victory in May 2014. The Sensex closed at 24,121.74 on 16 May 2014 when the election results were announced. After rising to a high of 29,681.77, the markets are now back to those levels. But does that mean we're in a bear market?

I posed this question to my friend over the weekend. He trades frequently and has made good money recently. I asked him this question because he doesn't believe in short selling. So he would have much fewer trading opportunities in a falling market.

'I don't think so, he replied. 'Bear markets usually start when a bubble bursts. There has been no bubble this time. So I don't think we are in a bear market. This is just one of those big corrections that happen from time to time.'

He may be right. But I'm not convinced. It's not necessary that a bubble has to burst to start a bear market. Having said that, I believe a bubble has indeed burst. It's just not as visible as the tech bubble of the 1990s. I'm talking about the bubble in the global credit market.

This is a bubble that has been in the making since 15 August 1971. We don't want to give a history lesson here, but that was the day gold disappeared from the global monetary system. Vivek Kaul, editor of Vivek Kaul's Diary, did a splendid job explaining this in his trilogy Easy Money. The world has been in a state of relentless credit expansion since then. Eventually, the whole world got addicted to easy money.

Of course, it should have ended in 2008. But that could have meant a repeat of the Great Depression. Central banks wouldn't allow that. Since then, we have seen an amazing global experiment. They have tried to reignite the bubble. The US Fed, the ECB, the BoJ, the PBoC - they have all been at it. What if we have reached the end of this unprecedented money printing? What would it mean?

It would mean the end of an era. It would also mean that deflation, as opposed to inflation, will become dominant. Prices of commodities have already crashed. Prices of various manufactured goods would come under pressure. This would lead to lower revenue for many businesses.

In such a situation, businesses would respond by cutting costs. Laying off employees would be an obvious choice. As people lose their source of income, consumption will fall. This would mean even lower revenue for businesses. Many will shut shop. Banks will have to write off loans. And so it would go on, a deadly downward spiral until credit levels became sustainable.

It would be a long way down in my opinion, a very severe bear market indeed. Of course, I could be wrong. This may turn out to not be a bear market after all. But what if it does? Will governments and central banks sit around doing nothing? What do you think?

Do you think we are in a bear market? Let us know your comments or share your views on the Equitymaster Club.

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2:25 Chart of the day

There are some interesting updates on the share-pledging front. The pledging of shares by promoters in companies listed on the NSE has reportedly hit a seven-year high! As reported by the Business Line, the percentage of total promoter holding pledged has gone up to 46% from 27%. In the process, the value of promoter shares pledged has risen to over Rs 2 trillion from Rs 1.3 trillion about six year ago. A year back, this figure stood at Rs 1.8 trillion.

Today's chart of the day shows the aggregated promoters' shares pledged over the years.

Promoter Pledging Situation Gets Worse

Sharing his views with the business daily, the MD of PRIME Database is of the view that this is largely a function of the decline in share prices.

The scary bit is that as many as seventy-nine companies have more than 90% of their promoter holding pledged; further, there are more than 208 companies where promoter pledging is more than 50% of their holding.

Share pledging is not an illegal activity. However, we recommend investors keep an eye out for such data points' especially for companies with questionable managements. In fact, in our internal scoring system - the Equitymaster Risk MatrixTM - which we display in our recommendation reports, we give this data point a high weightage.

For those looking to delve into stocks in beaten down sectors, it would make sense for investors to make sure that such checkmarks are well looked into before making their decisions. No matter how attractive the stock may seem, we suggest investors keep away from situations where the debt overhang situation become difficult to assess. It would be better to be safe than sorry as over leveraged firms with high percentage of pledged shares could very well turn out to be value traps.


Moving on from a 7-year high figure to a 5-year high number.

Turns out things are seemingly looking up for realty players in the commercial space, especially the office segment. As per property consultant JLL India, companies from the e-commerce, telecom and healthcare sectors are in expansion mode; and they have been leading in lapping up vacant office properties in major cities. In the process, the office space vacancies in the major cities have been on a sharp decline - a trend which began in 2013.

As per JLL:

  • Vacancies in Bangalore have reduced to 4% from 16% in 2011,
  • Chennai - from 32% in 2010 to 12.5% today,
  • Hyderabad - from 17% in 2009 to less than 10% currently,
  • Pune - from 18% a few years ago to 5% today.

Further, the company believes that the best days for this segment are yet to come, as 2016-17 will see vacancies reduce to below 13% across India.

This development may seem like the much-needed good news for realty players, who are otherwise facing trouble with rising inventory levels and debt piles.


At the time of writing, the Indian equity markets were trading higher with the BSE Sensex up by about 280 points or 1.1%. Mid and small cap stocks were trading strong. The BSE Midcap index was up 1.4% while the BSE Small cap index was up 1.5%. Banking stocks were leading the gainers.

4.50 Today's investing Mantra

"A pin lies in wait for every bubble. And when the two eventually meet, a new wave of investors learns some very old lessons: First, many in Wall Street -- a community in which quality control is not prized -- will sell investors anything they will buy. Second, speculation is most dangerous when it looks easiest." - Warren Buffett

This edition of The 5 Minute WrapUp is authored by Devanshu Sampat (Research Analyst).

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Equitymaster requests your view! Post a comment on "Are We in a Bear Market?". Click here!

8 Responses to "Are We in a Bear Market?"


Jan 25, 2016

Yes, the bear market has just started. After testing 30000 sensex fallen to the deep well losing more than 5000 points.Another 5000 points fall is justified .That means more pains in the year 2016.Investors with long term strategies can wait for that and start investing from there upon.
No SIP, No averaging, No timing the market but to wait for the rains to sow the seeds.Investing too is a natural phenomena.Let us do the research, anticipate further fall, wait for the down fall of PE ,
GET A DIRECTIONAL MOMENTUM Ddue to plocy changes, which is almost paralysed.Let Corporates pay the loans and avoid doing unethical way of swindling the money from banks.Let the culprits who have given such huge money of banks without any application of mind booked for trials.Till then Market go deep towards south.Till then let us take sidelines and watch the spectacular Damasha.


Shrinivas Moghe

Jan 21, 2016

I presume 'WE' means our Indian Stock Market. Since Modi government took over the reins, the market has been mostly bullish. This was the single main reason for investors to get attracted to Bazar. The global scenario was not much responsible for the bullish sentiment. But unfortunately, Mr.Modi has been unable to push the revamping measures, due to opposition's unreasonable ructions. Had the bills been cleared by our Parliamentarians, all the sectors would have got the much expected boost. Still the people are hopeful of Modi working out some solution. So, I feel that the present bearish sentiment has much to do with this cause, rather than the global gloom. Indian market is very huge, and has a capability to sustain such lull, provided our manufacturing sector runs like a bull. If Modi makes this happen, our market would instantly become bullish.



Jan 20, 2016

This piece of info scraing investors saying it will be long bear market is not good! STock select has recommended many stocks and asking investor to buy when market dips saying valuations are good! It will be good to send messages on positive side too and advice on hold/buy on stocks if it feels there will be real bear market. When market is up investor will not have complains but when down need more news items to hold and not be scared of investment


indu bhushan raina

Jan 20, 2016

On date, it can be safely said that the market is in a sideways / down trend . As usual the question comes in mind about the n direction the index will take - bullish or bearish? The US economy is claimed by the US authorities to be in upswing, the China and Japan story is also intact ,but for a a slowdown in China . . As per data in public domain ,China still remains a fast runner with speeds well above average for the average to emulate. Likewise , there have been no major hiccups in the Indian growth story which could be the subject of panic.

The crash of oil prices - even though would be affecting the economies of the oil companies/ oil producing nations , the silver lining in the cloud would be that barring above activity - all the balance industries would be benefitted by very cheap energy cost by reduction in the raw materials and working capital requirements for the fuel and process and these industries constitute a major chunk of the industries as part of the overall economy In such scenario why should a thought of a bear market starting even enter our mind. Till such time the cheap availability of energy lasts , the earnings of the Industries would show an upswing and should usher an era of fresh bull market - rather than bear market.

Like (1)


Jan 19, 2016

I agree it would be a bear market for stock market but only for short term. I believe, India is growing though at a slow pace. Our Macros are more balanced than others. we have stable & pro business Govt at the center and majority of population is young. Huge FDI flows in India and a huge start up lined up in India create a different snapshot in spite of slow down in world's economy. Global slowdown may impact India particularly; Export and commodities Businesses. But that impact won't be severe as you said. Since India is a consumption Based Economy, and Export doesn't have high weightage on economy. Even on Export side, we mostly rely to IT sector, which is non cyclical business in nature and it mostly depended on developed economy like US and UK etc. which are doing marginally better than previous time period. Our main problems are Huge Bank NPA, some Much Needed reform policy and fluctuating currency risk. India is still have high saving ratio after china, so Investment is not a worry. currency Risk has to be managed and we need one better monsoon to revive our Rural economy. We can expect this year to be good with plenty of rain fall after last two not so good monsoon. If thing goes as per our expectation, we can achieve 8-9% GDP growth in coming years. This FII will return once again, when they will see the growth only in india. Current correction is not unusual things for me, Since stock market still looks expensive as Nifty is still Trading at 20.08 PE and MID cap is trading at 25.12 PE in spite of no corporate profit from last 3-4 quarters . In my view, it has to be correct till Nifty reach 16PE, from there on we can expect a big bounce back in Stock market. But Stock market will be volatile Till economy stablise itself and corporate start reporting profitability again. China will also be stablise, post the transitions of Export & Investment Led growth model to Consumption led Market but it may take few years. I think for long term Investor, should start accumulating stocks when they fall to a comfortable label. Build a robust portfolio for Long term. This slow down can be a life time opportunity to create wealth massively!!!

Like (1)


Jan 19, 2016

Central bank will continue printing money.

Like (1)


Jan 19, 2016

Yes, I think we are in Bear market only.

From technical point of view, NSE will have chance to reach upto 6000 to 6100 (within 6 to 8 months).

Like (1)

Prabal Biswas

Jan 19, 2016


I think share market accommodates everyone. Investors with little money and investors with huge money. When the market tanks the little money people enter the market. Either way SENSEX was never supposed to land in the moon. If we had seen cancer in 2008 why are we so petrified with cough and cold in 2016?

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