scorecardresearchIs India set for a major bear market? This is what 7 leading analysts have to say
The recent fall in the market and the near term headwinds have raised concerns that the market may fall into the bearish trap. (PTI Photo/Kunal Patil) 

Is India set for a major bear market? This is what 7 leading analysts have to say

Updated: 11 May 2022, 08:00 AM IST
  • There is no respite for the market as the geopolitical issues have pushed commodity prices higher while lockdowns in China have raised fears that the global growth will be moderate this year.

Stock market has been witnessing strong bouts of volatility of late as investors are nervous amid aggressive rate hikes, inflation, faltering growth and uninspiring earnings.

The market has many near-term headwinds to deal with. Investors look anxious to understand if the market is set for a long bearish phase.


A bear market is when the stock markets see long phases of selling leading to declines in the indexes and stock prices of companies.


There is no respite for the market as the geopolitical issues have pushed commodity prices higher while lockdowns in China have raised fears that the global growth will be moderate this year.

Earnings of the next two-three quarters of the Indian companies are also expected to remain mixed as rising input costs and low demand may exert pressure on the margins of companies.

Bears galore?

The recent fall in the market and the near-term headwinds have raised concerns that the market may fall into the bearish trap. However, analysts still have faith in India’s long-term story.

"There are two possibilities – the domestic market corrects for say another two months and then starts recovering, or the market keeps falling and finally confirming an extended bear phase. We believe in the first possibility," said G Chokkalingam, Founder & Head of Research, Equinomics Research & Advisory Private Ltd.

Chokkalingam explained why the market may rebound.

"There are several reasons why we think the market may rebound: (1) domestic economy is relatively doing well, (2)the market also withstood a major sell-off by the FIIs, (3) valuation of the whole market, as well as that of many individual stocks, have moderated substantially; Sensex trailing PE has come down to 23 from an all-time high of 30, (4) despite inflationary regime, corporate performance in Q4FY2022 has been good, and (5) both retail investors and DIIs continue to support the markets," said Chokkalingam.

Another important factor that can save the market from a long bearish phase is the strong influx of domestic investors in the market.

The domestic investor base has doubled since the start of the Covid pandemic in March 2020 and almost five crore new investors have come into the markets, Chokkalingam pointed out.

Besides, a lot of existing investors also pooled more resources into the domestic equity markets post-March 2020.

"Despite the recent rise in the interest rates, return from the fixed assets remain very low in a single digit; metals are down; gold and silver also failed in the recent quarters to give any significant return or confidence; cryptocurrencies are also struggling to give returns now; real estate asset is lumpy one and less liquid. In this situation, coupled with a lot of liquidity created in recent times, are these retail investors going to panic and run away from the markets and cause a major bear market? We don’t think so unless the Ukraine war becomes a war of global majors directly," Chokkalingam added.

Ukraine war is a serious concern but any small indication of the war ending in Ukraine could set off a major fall in the oil prices and a rally in the domestic market. So, Chokkalingam suggests investors with at least another one-year investment perspective stay invested in the domestic equities while conservative investors may opt for 10 percent cash in the equity asset.

Some analysts believe the Nifty can give a negative return this year amid concerns over rate hikes, moderate economic growth, geopolitical issues and sustained foreign capital outflow.

We explain bear put spread in this graphic. 
We explain bear put spread in this graphic. 

"Rate hiked by US Fed and RBI dented the positive sentiments and leads to a huge drawdown across the indices. Economies are slowing and central banks have to raise rates. We may see further downward movement in the equity market ahead of the liquidity tightening. After six years of consecutive gain, it may be possible that Nifty may give a negative return calendar year 2022," said Akhilesh Jat, an analyst at CapitalVia Global Research.

What should investors do?

Investors should not panic and add quality stocks on dip with a long-term horizon, say analysts. The Indian market is poised for gains in the long term as recent reforms initiated by the government will pay dividends in the long term.

"This is a year where investors should accumulate their favourite Indian stocks on weakness in what remains Asia’s best long-term structural story in terms of equities," said Christopher Wood, Head of Equity Strategy, Jefferies Global.

"The long-term dividends from many of these reforms will become self-evident over the due course of time, as was the case with Margaret Thatcher, with perhaps the most dramatic in the Indian context being bankruptcy reform given the previous ingrained habit of the country’s major businessmen or ‘promoters’ to treat the state-owned banks as their private piggy banks," said Wood.

Events such as rate hikes and quarterly earnings are short-term headwinds and investors should increase allocation to stocks.

"RBI’s surprise move on increasing the repo rates is an acknowledgment of inflation becoming a more important variable in policy decisions than growth. It will not have an immediate bearing on growth or inflation, but it is an indication of things to come. These types of events will come and go multiple times in an investor’s journey to achieving financial goals and one should not be swayed too much," said Sorbh Gupta, Fund Manager- Equity, Quantum Mutual Fund.

"An equity portfolio stress-tested for balance sheet strength (lower leverage) and attractive valuations of investee companies is well suited for this environment. Investors should stick to their asset allocation plans and use a staggered approach to increase allocation to equities," said Gupta.

Anil Sarin, CIO of Centrum PMS said he would prefer to stay invested in high growth, high margin businesses at this juncture because such businesses have historically done well during tough times.

"We have had similar market conditions in 2013 and 2018, in both cases staying invested in strong businesses has been a winning strategy. Small and mid-caps have higher volatility, but they tend to do well during periods of rising economic growth. While this year will test the resolve of most investors, it would also be a good time to pick top-notch but small-sized businesses at attractive valuations. India is poised to deliver strong corporate profit growth in the coming years. Thoughtful mid-cap investors with the patience to stay invested over the next two-three years should do very well," said Sarin.

Vinod Nair, Head of Research at Geojit Financial Services believes this period of volatility can be used as an opportunity with buy-in-dip as the strategy to accumulate quality large caps that are now available at reasonable valuations.

"In this range-bound market, it is advised to stick with sectors that are expected to be least impacted by inflation and yield rises like banking, IT, pharma, and themes like green energy," said Nair.

Risk-averse investors should prefer defensive sectors and avoid high beta stocks for some time.

In such falls premium valuations drop significantly in the case of highly valued small cap and mid cap companies. Therefore, they need to be overweight on good large cap stocks. Over a period when market stablises, one can switch to beaten down small caps and mid caps,” said Mitul Shah - Head of Research at Reliance Securities.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies and not of MintGenie.

How to deal with the stock market losses?
How to deal with the stock market losses?
First Published: 11 May 2022, 08:00 AM IST