Bear market is over? Is it is a beginning of bull market? Market outlook study by Be and Make

Bear market is over? Is it is a beginning of bull market?

The answer is definitely “NO”

Market outlook study by Be and Make

So many investors are having such questions and some analysts already saying that worst is over and all the negative news was priced in, then we are entering in to the bull market?

My perception is that worst is not over and the rally coming now is a bear market rally only.

What are the points at this point of time favouring India.

1.       Most important point is the falling price of crude.

2.       Migration of manufacturing units from China.

3.       Propagation of corona virus is little lesser than developed economies.

4.       Reducing interest rates.

What are the points which adversely affecting India.

1.       Lock down eroded of about 18 lakh cr to India’s GDP.

2.       Corona is still propagating globally and there is no indication that its affect is over.

3.       Still struggling to discover the medicine or vaccine to corona.

4.       Lock down cannot be removed completely.

5.       Supply chains disrupted that they may take at least three months to restore the supply chain only.

6.       Several small scale industries are likely to bankrupt.

7.       Almost 30crore Indians likely to go in to the poverty.

8.       Companies likely to affect severely especially those are sitting with huge debt equity ratio.

9.       Little room left over to RBI and Central government to boost the economy.

10.   Our exports likely to take a dip as developed economies try to concentrate on their core strengths.

What is the outcome?

Unless the dust settles down i.e., either propagation of corona is reduced convincingly or any medicine or vaccine is discovered the effects on the economies will not be measured. Till that time markets cannot enter in to the bull market. Governments try to support the economies by pumping the money but they will able to give breathe to bulls in other terms they are just able to move the indices and are generally called as bear market rallies and the current rally is also the same one.

Where might be the bottom?

As already told unless the dust settles we cannot gauge the damage to economies. It all having some cascading effects based on the central banks and governments actions. If they act promptly they will be in the race and if they miss the bus then they may have the higher impact. As of now, the upcoming down wave might have legs to test the previous lows i.e., 7500 level on nifty.

What mistakes generally done by common investor in a bear market?

Generally common investor’s psychology will be like this,

Ø First stage: In the beginning of the bear market common investors try to buy the beaten down stocks or average the existing stocks so that they try to bring down the average buying price. In this stage every common investor strongly believes that market will recover very soon and all the bad news is priced in as at this point of time already stocks might have fell more than 25%.

Ø Next stage: In the stage stock which were added (beaten down stocks might rebound sharply and the up move might be 30-50% from their lows) and common investor feels that he did wonderful markets seems to be entering in to the bull market. Governments and central banks actions act as steroid and bulls try to move the market. At this stage also some investors invest in the beaten down stocks or the stocks which led the market in the last bull market.

Ø Next stage: Now, the market starts moving down again.  Some bad news again deteriorates the sentiment and selling will come. In this stage, again stock will fell more than 40% from the recent highs. At this point all the small and common investors feel nervous and their averaged portfolios will enter in to the deep losses in per cent terms and value terms.

Ø Next stage: This phase is real character testing phase and markets again bounces a bit from the recent lows due to some positive news from the economies and this move would be around 20-30% generally but the common or small investor remains in loss. Small investors stocks generally will be in huge losses and he thinks that he did a mistake in choosing the good stocks as some sectors outperforms at this stage also when compared to broader indices. In this stage markets consolidates for several weeks and in some cases months also and tests the nerves of the small investors as he is sitting in big losses and there will not be any good news about the economies.

Ø Final stage: Now, the market starts moving down again.  Some more bad news will come at this stage and they are slightly bigger in magnitude like bankruptcy or defaulting etc., of a major institute or system etc., Portfolios doomed and dread prevails in the whole world and markets takes sudden knock based on some big news. Now, the small investor’s portfolio shrinks and he tries to keep some cash by selling portfolio. This is the stage where bottom is formed. After this, markets consolidate for several months and years also which will act as a base for the next Bull Run. Some stocks along with the broader indices start moving and after several years’ markets reach new highs.

These stages may not be the exact number as mentioned above and it may be either one stage less or higher but it should be confirmed by the magnitude of the damage to the economy.

So, what to do now?

                The Indian government came with robust stimulus pack with 20 lakh crore but it contains the monetary relief given by RBI recently and for the remaining most of the amount is only a policy decisions and are can be compared to the target put on a Five year plans. So, market may not cherish to the announcements as the government not addressed the issues like demand side. Government only concentrated on the supply side. As per my experience now we require to ignite the demand and not the supply. Stimulus means some printed money should go in to the hands of the people who can create the demand.

The nifty has strong resistance at 9980-10458 when speaking technically. The subprime problem had resulted out indices to fall 60+% from its peak but the current corona effect on global economies is much bigger than that crisis tells the real story. We are not only losing the one quarter earnings but its effects will replicate in the upcoming years also. Now our government is not having sufficient room and public is not having sufficient money in their hands is the concern for the Indian economy. So, try to keep some cash to invest in the down fall. Once the market moves to the above said levels start investing in several (at least three) steps according to your risk appetite. As of now, the upcoming down wave might have legs to test the previous lows i.e., 7500 level on nifty. There are so many ifs and buts, hence the bottom exactly cannot be predicted right now. Cash is king is the theme one should follow for time being,

With thanks

Be and make

Note: This is just a study of mine and if you want to disagree with it you can share your views and if you want to invest you should contact your financial advisor or follow the rules existing.