A bear market is a fall of 20% or more in a broad index such as the Nifty 50 or Sensex from its recent high, sustained over weeks or months rather than a single bad day. India's last one was the COVID crash of 2020. The Nifty 50 lost about 38% in five weeks, then climbed back to a new record by November the same year.
A bear market is a stretch of time when share prices keep falling and most people in the market expect them to fall further. The usual test is a drop of 20% or more in a major index from its latest peak. A smaller fall, between 10% and 20%, is called a correction. The opposite, a long run of rising prices, is a bull market.
What counts as a bear market
Size is the first test. The index has to be down 20% or more from its high, measured on closing prices. Breadth is the second. The selling has to spread across most sectors, not just one industry or a handful of stocks. The third is time. A bear market plays out over weeks or months. One ugly session, however large, is a crash, not a bear market.
A few other things tend to show up together. Rallies happen on thin volumes and sell-offs on heavy ones. The India VIX, which measures how much volatility option traders expect, rises sharply. And good news stops moving prices, while bad news moves them a lot.
What causes one
Most bear markets start with the economy. GDP growth slows, companies earn less, and the shares that were priced for growth get marked down. Rising interest rates do the same job from a different angle. When the RBI tightens hard, borrowing gets expensive and a fixed deposit starts to look like fair competition for equities.
Shocks can do it faster. A pandemic, a war, a banking crisis abroad or a spike in crude oil can set off selling before any economic data turns. In India there is one more ingredient. Foreign portfolio investors own a large slice of the big listed companies, and when they sell for months at a stretch the Nifty 50 and Sensex feel it first.
Once prices are falling, fear does the rest. Investors sell because prices are down, which pushes prices down further.
Bear markets in India
Two episodes are worth knowing. The first is the global financial crisis. The Sensex touched 21,206 in January 2008 and closed at 8,160 on 9 March 2009, a fall of about 60% over 14 months. It did not get back above 21,000 until November 2010.
The second is the COVID crash. The Nifty 50 closed at 12,362 on 14 January 2020 and at 7,610 on 23 March 2020, down roughly 38% in little more than five weeks. The exchanges' market-wide circuit breaker, which halts trading for 45 minutes when the index falls 10% in a session, was triggered twice that month, on 13 March and again on 23 March. The recovery was just as unusual. The Nifty 50 was at a record closing high by November 2020.
So a bear market can last more than a year or be over in weeks. The pattern so far is that the recovery that follows has always taken the index past its old peak.
Bear market, correction or crash
A correction is a fall of 10% to 20% from the high. These are common, often two or three a year. A bear market is a fall of 20% or more that keeps going. A crash is about speed rather than depth: a drop of 10% or more inside a day or two. A crash can start a bear market, as it did in March 2020, but plenty of crashes are followed by a quick recovery.
What it means for traders
For a long-term investor the standard advice is to keep SIPs running, since each instalment buys more units at lower prices. A trader on SAHI has more direct options.
Index futures can be sold, and put options bought, to profit from a falling market. A long put has a defined maximum loss, which matters when daily ranges are wide. The same instruments work as insurance. A Nifty 50 put can protect a basket of large-cap holdings in a portfolio without selling them. There is more on this in how traders use hedging to manage risk.
Risk control matters more than usual. Bear market rallies are sharp and short, so a trailing stop loss on a short trade locks in gains when the bounce comes. Position sizes should shrink too. The same lot carries more rupee risk when volatility doubles. To understand the indices that define a bear market in the first place, read what the Nifty 50 and Sensex are and how they are built.
FAQs
How long does a bear market last?
There is no fixed length. India's 2008 bear market ran for about 14 months. The 2020 one lasted about five weeks before the recovery began.
Is a 20% fall in one stock a bear market?
No. The term applies to the market as a whole or to a broad index. A single stock can fall 20% in a strong market. That is a weak stock, not a bear market.
Should SIPs be stopped in a bear market?
Most financial planners say no. Instalments made at lower prices buy more units and bring down the average cost, which helps when prices recover.
Can traders make money in a bear market?
Yes. Index futures, put options and intraday short selling in equities all let a trader benefit from falling prices, as long as risk is controlled.