Crude, inflation, rates to set mkt undertone: Experts

Q: Are we really in a bear market kind of a situation? At every fall and every level it seems like value has emerged but actually prices just keep grinding lower and lower like we have seen in phases in the past.

Vaidyanathan: You could possibly call it as a cyclical bear market in the middle of a long structural bull market. I don’t think this is a bear market as definitions would describe. 
 

For some of us who were in the market in 1990-91, everybody talks about the reform kick-off of in ‘91 as done when India was put to a corner. But that kick-off was in response to being completely pushed to the corner in October 1990, when there was a downgrade of the country and over the week-end, this market lasted about 25% or so.

I am not saying we are seeing a downgrade, because there are a number of favorable factors for this. But we are seeing a similar crunch situation. The government’s management of finance has gotten exposed. It did not get exposed for 3-4 years because the economy was booming. Otherwise, when the economy is not moving and this inaction of the government has exposed the bad management of the finances, it is in such corner situations that we do something. Investing in equity today is back to a scenario like 2002-03.

You are facing a scenario of hidden plus overt 10% fiscal deficit, which is completely unsustainable. The second innings of reforms is going to kick off the next run up in the market even though that could be 9-12 months out of today. But if you are a committed investor in this asset class for the long-term, this market is giving you opportunities.

Q: Could the bounce be in the nature of a vicious bear market rally which sometimes takes 10-15% kind of a shape, but eventually prices come down to form a lower bottom?

Kedia:  If we look at the history of the last hundred years of equity performance, there has not been a single bear market rally. Bear market is a relative term and in six months time, so many stocks have lost about 50%.

Perhaps in the bear market, we have seen in the last 15 years in India that many stocks have never lost so much as 50%. The percentage loss has already been so severe at this point that to really evaluate whether we have a bear market may not really be so very beneficial.

If you are looking at the near-term or the nature of that bounce, a new high in the next 12 months is extremely ambitious. A move up from here as of now is safer to be looked at as more in the nature of a rally where there will be movement upwards.