Anatomy of bear markets

We are in a market that is not behaving the way most investors have seen it acting in the last five years. We wonder why a stock is falling when the EPS is rising.

Stocks no more climb past levels from which they have fallen. Companies are getting hammered on good news. And you don't jump out of bed anymore to switch on the TV to see what's happened to the Dow & Nasdac.

You are right.  It's a bear market. 

 

 

HOW SENSEX STOCKS FARE IN BEAR MARKETS

% FALL	1993	1996	1998	2001	AVG	2008
SENSEX	0.54	0.41	0.39	0.56	0.47	0.29
= or > 80%	-	7	2	3	3	-
> 50 <>	17	12	12	7	12	3
> 20 <>	11	5	12	16	11	16
> 0 <>	2	4	0	2	2	7
POSITIVE RET	1	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 you 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.

List of Sensex Stocks fell more than 50%

FALL OF YEAR 1992-93

Sr. No.	Name	2/4/1992	26/04/93	%Chg
	BSE SENSEX	4387	2036	-54
1	VOLTAS LTD	22.50	4.88	-78
2	TATA STEEL	277.04	73.10	-74
3	CEAT LIMITED	244.89	65.76	-73
4	ACC LTD	362.19	103.58	-71
5	TATA MOTORS	321.88	101.56	-68
6	PHILLIPS	251.9	84.73	-66
7	INDIAN ORGANIC	76.13	26.16	-66
8	RELIANCE	166.30	65.36	-61
9	PAEL	40.01	17.34	-57
10	TATA POWER	167.70	74.82	-55
11	BOM DYEING	569.13	257.50	-55
12	HIND.MOTORS	48.55	22.25	-54
13	GESHIPPING	52.20	24.63	-53
14	L&T	187.50	88.75	-53
15	BALARPUR IND	366.75	180.00	-51
16	ITC LTD.	28.35	14.01	-51
17	ZENITH COMP.	68.82	34.41	-50

 

FALL OF YEAR 1994-96

Sr. No	Name	12/9/1994	4/12/1996	%Chg
	BSE SENSEX	4629	2744	-41
1	INDIAN ORGANIC	89.07	9.02	-90
2	BALARPUR IND	327.50	35.00	-89
3	MUKAND LTD.	385.00	60.00	-84
4	VOLTAS LTD	16.25	2.70	-83
5	BOM DYEING	490.00	86.50	-82
6	PHILLIPS	417.50	79.00	-81
7	CENTURY	445.00	87.30	-80
8	GUJ.ST.FERT	256.15	76.00	-70
9	HIND.MOTORS	48.00	14.25	-70
10	ACC LTD	254.96	78.66	-69
11	PAEL	86.71	27.00	-69
12	ADI BIR NUVO	298.63	95.26	-68
13	BHARAT FORGE	43.83	14.42	-67
14	GE SHIPPING	51.56	18.34	-64
15	CEAT LIMITED	145.12	53.97	-63
16	RELIANCE	164.37	68.54	-58
17	TATA STEEL	181.01	82.01	-55
18	SIEMENS LTD.	65.10	29.62	-55
19	GRASIM IND.	785.00	369.00	-53

 

FALL OF YEAR 1997-98

Sr. No	Name	6/8/1997	20/10/98	%Chg
	BSE SENSEX	4523	2764	-39
1	SAIL	24.75	4.95	-80
2	ARVIND MILLS	140.25	28.8	-79
3	TATA MOTORS	396.5	93.55	-76
4	M&M	242.13	75.8	-69
5	TATA STEEL	122.53	40.32	-67
6	IDBI BANK	65.63	22.47	-66
7	GE SHIPPING	34.04	12.1	-64
8	GRASIM IND.	376	134.3	-64
9	TATA CHEM.	208.25	76.2	-63
10	IPCL	133.5	50.75	-62
11	HINDALCO	109.58	48.09	-56
12	SBI	318.81	146.33	-54
13	COLGATE	364	168.2	-54
14	HPCL	361.35	173.02	-52

 

FALL OF YEAR 2000-01

Sr. No	Name	11/2/2000	21/09/01	%Chg
	BSE SENSEX	5924	2600	-56
1	NIIT LTD.	406.89	11.55	-97
2	M&M	308.48	26.27	-91
3	NOVARTIS	1043.10	200.85	-81
4	INFOSYS	1245.37	276.42	-78
5	MTNL	378.55	111.00	-71
6	L&T	231.50	75.95	-67
7	TATA MOTORS	166.05	69.05	-58
8	AMBUJA CEMENT	41.95	18.80	-55
9	ICICI BANK	157.00	74.65	-52
10	INDIAN HOTEL	21.38	10.20	-52

 

FALL OF YEAR 2008

Sr. No	Name	10 Jan 2008	20 June 2008	%Chg
1	JAIPRAKASH	430.95	166.6	-61.34
2	RELIANCE ENR	2465.1	962.55	-60.95
3	DLF LIMITED	1142.2	456.35	-60.05

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. Since markets do not fall at one go, we could see some bottom fishing happening at around 4200 in the Nifty, but this will be only temporary and of use to only position traders.