Explained: Here is what happens when stocks enter a bear market

The Indian stock market cratered into bear territory on March 12, with the blue-chip Nifty50 sliding to its lowest in more than 2-1/2 years, after the coronavirus outbreak was termed a pandemic and the government suspended tourist visa to foreigners.

Confused between corrections or is it a bear market? Well, chances are that if you are new to equity markets these two words will be used in tandem. But, there is a small difference between the two.

Well, the bear market gets triggered when a stock or let’s say an index falls more than 20 percent from its recent high. A bear market is a phase when the sentiments are in a risk-off mode and it lasts longer than a correction.

However, correction can be categorized as a phase when the stock or an index drops by let’s say 10 percent, but typically these phases are short-lived.

Nifty50 broke below the crucial support of 10,000 and then 9700 on Thursday, a reflection of fear in the market amid the rise in Coronavirus cases across over 100 countries. A rapid rise in cases has already forced the govt. across the globe to shut down travel to other countries, and cancel key events that could have economic implications.

Global equity markets came under pressure after the World Health Organization (WHO) declared COVID-19 a global pandemic this week which has rapidly spread to more than 120,000 people from Asia to the Middle East, Europe and the United States.

Earlier in the month of March, credit rating agency Moody’s said that the coronavirus has increased the risk of a global recession this year.

As part of a wholesale cut in its forecasts, Moody’s said that advanced economies including the United States, Japan, Germany, Italy, France, Britain, and Korea could all fall into recession in an “adverse scenario”.

The Nifty50 took a vertical fall from the high of 12,430 recorded on January 20 to 9,648, which is the intraday low as on March 12 — a fall of 22 percent.

Tracking the sell-off in global equities, Nifty50 hit a 32-month low while the S&P BSE Sensex breached 34,000 to hit a 24-month low on March 12.

But, this is not the first time when the Nifty50 has entered a bear phase. The last time when it entered bearish territory was in 2015 before bouncing back.

The Nifty50 registered a vertical sell-off from 9,119 recorded on March 4, 2015, to 6,825 which was the intraday low formed on February 29, 2016, which effectively translates into a drop of more than 25 percent.

In 2010, the market bottomed out after taking a hit of 28 percent from the highs of 6,338–4,531.

Anecdotal data suggest that usually, declines in the index have not gone further than 25-28 percent; hence, a recovery could be in sight. The last time when Nifty50 entered the bear phase back in 2015, it took around 2 years for the index to reclaim the same level.

The Nifty50 which registered a vertical sell-off from 9,119 recorded on March 4, 2015 to 6,825 which was the intraday low formed on February 29, 2016, reclaimed 9119 in the year 2017. The index hit an intraday high of 9122 on March 14, 2017.

Typically, the timeframe could vary, but experts feel that this time around the recovery could be swift as fears of Coronavirus fade.

“The current sell-off is on a different footing which is an outcome of fear of coronavirus being a pandemic which could possibly slow down the economic activity across the globe,” Umesh Mehta, Head of Research, Samco Securities told Moneycontrol.

“No sooner the fear recedes, bounce-back would be sharp and quick unlike the year 2008 where the recovery was slow,” he said.