Bear market? But how fast the recovery will happen or when it will happen is anybody's guess.
This raises the fundamental question: Are we in a bear market? (A bear market denotes a prolonged period that witnesses a fall in the value of investments and consequent pessimism in the market. The last such bear market set in when the technology bubble burst in 2001: markets corrected over 56 per cent between 11 February 2001 and 21 September 2001, from 5,933 to 2,600 on the Sensex.)
Based on past experience, market-watchers list certain conditions that forecast the onset of a bear market:
First, there is an exponential rise in prices. This has happened to an extent: Prices have risen and, at 20,000 levels on the Sensex, valuations were looking scary.
Price-to-earnings (PE) ratio of Jaiprakash Associates went from 51 in September 2006 to 94 in January 2008, followed by DLF from 55 to 77 and Reliance Energy from 34 to 67. During the tech bubble, too, Infosys PE went up from 42 in January 1999 to 300 in March 2000.
At the same time, HCL was trading at a PE of over 200. However, the tech era exuberance was much higher: the markets did not scale quite those heights this time around.
Image: A bad day in the stock market. A dealer reacts as stock prices start dropping | Photograph: Indranil Mukherjee/AFP/Getty Images
Also read: World's 10 biggest banks
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