Do you see the Indian market slipping into bear territory?

Before we answer this question, let us first define what we understand by bear markets and whether there is a standard definition for bear markets. There is no hard and fast definition of a bear market but the closest definition is that of a 20% fall in general diversified indices from the peaks. The requirement is that the index has to fall below 20% of the peak and also be there for some time. It is not just enough to fall. Remember, the US is already in bear markets because the S&P 500 is down 22% and NASDAQ is down 35% from the peaks.

Indian markets have fallen (we are talking about the Nifty) 18% from the peak. So, it is technically still away from becoming a bear market. But there is a twist to that argument. During the period, the dollar depreciated 5.1% from the peak levels and if you add that, Nifty is down over 23% from the peak. So, even India is already in a dollar bear market. For the foreign portfolio investors, effective dollar returns matter. If you accept that definition, then one can infer that the Indian markets are already in bear territory.

Then the question is whether the Indian markets can fall further from the current levels? One good thing is that, most short term risks are already in the price. The one big risk at this point of time is that India could go into a recession, but then advance tax numbers are robust and capacity utilization is up from 65% to 71%. That is hardly the sign of a bear market. Also, when rupee is at 78/$, most FPIs will look for currency arbitrage. More so, when the FPIs have sold $28 billion of equities in 9 months. Bear market is a small risk.