IT’S THE RETURN OF THE BEAR MARKET AND IT LOOKS UGLY
The bull run, which began in 2013, is on its deathbed. After five years of running on fumes of hope and battling reckless policy misadventures, the bull lies exhausted. It may have climbed one wall of worry too many. And now, the bear returns — its footprints all over the trading screen in the last few weeks. The Nifty has fallen only 13% from its highest level this year, not technically qualifying for a bear market yet, but there can be no doubt that the larger universe of stocks has slipped into the grip of the bear. The NSE midcap index is down 26% from the highs, the small cap index down 32%. A very large number of stocks are trading at their 52 week lows, with more joining the list every passing day. The mood on Dalal Street is funereal. The swagger is gone, replaced by the unmistakable stench of fear. You know a bear market when you see one. It is here.
The government, at such times, usually shirks responsibility by pointing out that we are not alone in our misery. But that is true of all market regimes — even bull markets are hardly unique to India. We rise as one, and fall as one. From the highs this year, the Shanghai index in China is down 28%, the Hang Seng in Hong Kong down 25% and Kospi in Korea down 18%. But far from comforting us, it should scare us even more.
This is looking ominously like an emerging market (EM) bear phase, which spells big trouble for us at a time when our own macro stability is fast spinning out of control. When your own house is on fire, you can hardly derive solace from the fact that the entire neighbourhood is as well.
The portents have been dire for some time. But somehow the markets stayed afloat in the naïve belief that our economic masters were in control of the situation. That has changed. The RBI, in its recent monetary policy, all but told the market that it was not prepared to defend the rupee. An open invitation to rupee bears and a big mistake. If the rupee goes into free fall, so