Will history repeat itself? - Views on News from Equitymaster

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Will history repeat itself?

Apr 2, 2001

The first half of the previous week did raise hopes of a welcome change to the steady slide, which was being witnessed on the bourses. However, adverse proceedings on the international and domestic markets led to the domestic indices slipping back into the red. This is the seventh consecutive weekly decline on the BSE and NSE. A repeat after eight and a half years.Since the historic budget of Mr. Manmohan Singh in 1992, the then finance minister, the markets have only fallen twice for seven consecutive weeks. No price for guessing when was the first time. To refresh memory, the only other time the markets saw a seven weeks of continuous decline was in 1992 -- year of Harshad Mehta scam -- from October 1, 1992 to November 20, 1992.

Falling back on past BSE Sensex data, post liberalization, to try and determine how the markets could react brought out some interesting points. Never have the markets fallen for eight consecutive weeks and only once since 1992 have they declined for nine straight weeks from 17th November '94 to 27th January '95. Therefore, having fallen for seven straight weeks (February 16, 2001 - March 30, 2001) will the coming week halt the bear run?

Consecutive drops
1-week49
2-weeks27
3-weeks12
4-weeks13
5-weeks5
6-weeks0
7-weeks2
8-weeks0
9-weeks1
10-weeks0
11-weeks0
Consecutive gains
1-week48
2-weeks25
3-weeks19
4-weeks8
5-weeks4
6-weeks3
7-weeks0
8-weeks0
9-weeks0
10-weeks0
11-weeks1

There have been 239 weeks of decline as against 236 weeks of gains.

If the past records are any indication, it is more likely that the markets will fall nine straight weeks than eight. However, having fallen seven consecutive weeks already, the chances of the markets falling further are 33%. The probability for the markets to fall seven or more straight weeks is a minute 0.6%.

Looking at it from another angle. The week (April 30, 1992) Harshad Mehta was arrested the markets closed 578.3 points lower or 13%. As the scam was unraveled the decline continued for 3 straight weeks wiping off 1072.5 points of the Sensex or 24% of the market wealth. Friday, May 14, 1992, the day the bank accounts of the infamous Growmore Financial Services were frozen the markets closed the week with a 5.9% (229.7 points) drop. More importantly, the following week the markets dropped 7.2% or 263.5 points despite the weekend break in between.

Nevertheless, having put forward the data, it is a plus point that the arrest of Mr. Ketan Parekh was after market hours on Friday. If this was a calculated move one has to praise the thinking of the concerned authorities. The weekend break will help settle some frayed nerves and may have prevented a panic sell situation.

Therefore, the markets could be expected to exhibit more rational behaviour. Although the undertone remains weak, as revelations of the scam come forth. Also, fortunes on the NASDAQ will bear an impact. K-10 darlings though will continue to face a tough time.

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