With no foreseeable end visible for the Russia-Ukraine crisis and its corresponding impact of rallying crude oil prices, the markets and most sectors now seem to be entering the bear market phase.
Further, the weakening rupee, surging inflation, aggressive US Fed rate hike outlook and rising bond yields have also kept the investors cautious and moving towards more safe-haven assets.
But what is a bear market? Investopedia described a bear market as a phase when the market experiences prolonged price declines. It typically describes a condition in which securities prices fall 20 percent or more from recent highs amid widespread pessimism and negative investor sentiment.
While Nifty is still around 5 percent away from entering a bear market, most sectoral indices have already fallen over 20 percent from their respective 52-week highs beginning their bear market phase.
The Nifty Realty has fallen the most - 30 percent, from its 52-week high followed by Nifty Fin Services, Nifty Auto, Nifty PSU Bank, Nifty Bank and Nifty FMCG, which are all down over 20 percent each from their 1-year highs, thus entering their bear market phase.
Other sectors have also not performed well. Nifty Pharma and Nifty Infra are down around 15 percent each, a little away from their bear market phase. Nifty IT was down 13 percent from its recent high while Nifty Metal lost only 2.5 percent from its 52-week high, making it the best performing sectors amid this chaos.
The decline in broader markets was in-line in most sectors but they have underperformed benchmark indices. The Nifty Midcap 100 and Nifty Smallcap 100 indices are down 19 percent and 21 percent respectively from their recent highs.
|Sector||% decline from 52-week high|
|Nifty Fin Services||-22%|
|Nifty PSU Bank||-21%|
Most stocks in the Nifty Realty index have lost over 20 percent each from their highs. All stocks were in the red in the last 1 month with Indiabulls Real Estate declining the most, 31 percent. Meanwhile, Macrotech Developers lost 25 percent, Socha shed 20 percent and DLF was down 18 percent.
As per global brokerage house Jefferies, strong demand-supply fundamentals and early-cycle home affordability imply recent sector correction is a good buying opportunity.
Auto was another big laggard, down 22 percent from its 52-week high. Going ahead analysts feel that a significant demand improvement may be seen but the current lockdowns are expected to have an unfavourable impact on the demand scenario. Moreover, the rising input costs are wreaking havoc in the Auto companies with leading companies such as Maruti reporting margin disappointments, noted Axis is a report.
Nifty Bank also entered its bear phase, falling 21 percent from its 52-week high. 11 out of 12 constituents of the sectoral index fell in double digits just in the last 1 month, down between 13-22 percent each. Kotak Mahindra Bank was the only one that fell less than 10 percent (8 percent) in this time.
Some of the bank stocks suffered because of concerns about their asset quality. In the wake of Covid-19, analysts started to point out that banks were finding it difficult to increase their lending and market share. Also, there has been a lot of structural changes in the last 3-5 years which has significantly dented the prospects of the banking sectors.
Going ahead, the heightened volatility in the market is likely to continue at least till the war continues. Even US benchmark Nasdaq is now 20 percent down from the peak indicating that it has entered the bear market territory.
"All commodities have surged indicating imminent higher inflation. Even though the market is now oversold, sentiments are negative. IT, energy, metals and pharma continue to be safe bets in the present context. But for long-term investors, better returns are likely to come from fundamentally strong beaten-down segments like high-quality financials," advised VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services.