Indian markets have fallen significantly from the March 2015 highs. In fact, from March 2015, until Jan 2016, the Sensex has dropped almost 19 per cent.
Does this constitute a bear market? Nor really. If not, then how do you define a bear market. A bear market is one in which stocks fall 20 per cent from their peaks.
What are the features of a bear market?
1) No great momentum on the upside
A rally in a typical bear market would lack any momentum on the upside. For example, every rally that you see would be swiftly be sold into. This is very typical of short gains that bulls try in a bear market, which is nothing, but a dead cat bounce.
2) Sustained downside
The downside is rather sustained in a bear market. In the first 3 weeks of Jan 2016, the Sensex has lost almost 7 per cent. In the entire 2015, the Sensex had lost only 2015. The selling is swift and ferocious.
3) Mid caps plunge
Midcap stocks plunged faster than the index stocks. This of course is talking of the obvious, as they always do. However, the fall is sharper. So far, the midcap index has fallen almost 13 per cent this year, which is almost 2 times that of the benchmark indices.
4) Bear markets take longer to recover
Bear markets also take a longer to recover and enter a bullish phase. This is the most painful part for an investor, who eagerly awaits for the market to rise.
How do you approach the bear market as an investor?
As mentioned bearish markets take a longer time to recover. So, you need to have the patience, if you are an investor who has bought and is sitting in losses.
The first thing you should do is admit that you are in a bear market and look for hopes to recover. In terms of Psychological impact, the first would be anxiety that develops, than there is the fear and last is panic, which forces the investor to sell shares at a heavy loss.
All of these are dangerous for the investor. For those who are looking at long term investment, the best strategy would be to take dividends and sit put, until you see a dramatic recovery in prices.