Sensex, Nifty Rally For Second Straight Day, But Remain Far from Record Highs – Is Market In Bear Territory?

Indian stock market investors witnessed some relief as the benchmark indices closed in the green for the second straight session on March 6. The 30-share Sensex closed at 74,340.09 levels up by 609.86 points or 0.83 per cent. Nifty50 closed at 22,544.7 level up by 207.4 points or 0.93 per cent.

Despite the two-day recovery seen in the markets, the benchmark indices have fallen significantly from their all-time highs which were seen in September 2024. Notably, the Nifty50 has declined 14.2 per cent from its all-time high of 26,277.35 and the Sensex has fallen 13.53 per cent from its record-high level of 85,978.25 levels.

The decline seen in the markets has left stock market investors very unhappy. Additionally, it has led to a rise in speculations around the market entering ‘bear territory’ or becoming a ‘bear market’.

Shankar Sharma, the Managing Director of First Global shared a post on social media platform X in which he claimed that the current market is a ‘bear market’. He also mentioned the previous instances when Indian investors witnessed bear markets.

“We have had 4 major Bear Markets in India since 1990: '92: Harshad. 2000: Dotcom. 2008: GFC. 2020: COVID.  The market recovered fairly quickly in 3 except in HM mandi. Why? Because that was a local bear market. Others were global, hence, coordinated moves happened by all CBs. HM Mandi lasted ~10 years. Because it was our local problem, so had to be dealt with by ourselves. This current Bear Market we have is 100% local. We need to find our own bullets to come out of this. And if 0.25 per cent rate cut and Rs. 800/ per Capita stimulus, count as bullets, God save us,” Sharma said in his post.

Are Indian Markets In Bear Territory

Both bear markets and market corrections are characterised by a significant downtrend in the stock market. The entry of a market in bear territory or very sharp corrections often leads to a change in investor sentiment as many investors become less risk-seeking and more risk-averse. However, a bear market is different from a sharp correction. While Indian markets have traded under pressure and have seen consistent correction from their record highs, it cannot be categorised as a ‘bear market’. Generally, a stock or an index is said to be in bear territory if it corrects more than 20 per cent from its 52-week high. Presently the Nifty50 has declined 14.2 per cent from its all-time high and the Sensex has fallen 13.53 per cent from its all-time high.

Bhavya Shah the Head of Research at Wallfort PMS told Outlook Money that the recent decline seen in the Nifty and Sensex is a correction and not a bear market. Shah added that the Nifty has delivered uninterrupted gains for nine years which made corrections inevitable.

“The recent 14-15% decline in Sensex and Nifty is best seen as a correction rather than a bear market. Over the past nine years, the Nifty has delivered uninterrupted gains, an unprecedented run that made some degree of correction inevitable. Valuations, especially in the broader market and certain large-cap stocks, had become expensive, making the market vulnerable to a correction,” Shah said.

Shah also noted that apart from a 20 per cent correction, a bear market is also classified on the basis of the overall sentiment, economic conditions, and the duration of the decline.

“While a 20 per cent decline from the 52-week high is a widely accepted definition of a bear market, it is not the only way to classify one. A bear market is better understood in terms of market sentiment, economic conditions, and the duration of the decline,” Shah said.

Shah added that despite the decline the overall fundamentals of the benchmark indices are stable and earnings for the third quarter of FY 2025-26 have not shown significant deterioration.

“In the current scenario, despite the 14-15 per cent decline in Sensex and Nifty, the overall economic fundamentals remain stable, and corporate earnings have not shown significant deterioration. Hence, this phase is better viewed as a correction rather than a full-fledged bear market,” Shah said.

What Causes Bear Markets

Bear markets are caused by several factors such as a slowdown in the pace at which an economy is growing, events such as the spread of pandemics and geopolitical instabilities such as wars. Generally, a slowdown in the economy is characterised by a drastic rise in unemployment and a significant fall in disposable income and the profits of companies.

In the Indian context, the bear phases seen in the stock market have followed domestic triggers such as the Harshad Mehta scandal in 1992. Similarly, the market has also entered bear territory triggered by global events such as the end of the dotcom boom in 2000, the Global Financial Crisis seen in 2008 and the Covid-19 pandemic of 2020.

Negative investor sentiments can also push markets into bear territory as prices of shares typically fall if a company does not perform well and generates lower-than-expected profits. Negative investor sentiments can potentially lead to investors selling off the shares they hold which in turn can lower the price of the stock. If such sentiments persist for a long time they can lead to a downtrend in stock prices.

How Long Do Bear Markets Last

While there’s no specific time period for which a bear market can last, historically they can last for any time period between weeks to years. Investors generally get below-average returns in such periods and even if gains are seen the gains do not sustain and the prices fall back to lower levels. Bear markets typically have four phases as per experts. In the first phase of a bear market investor sentiments are high and the prices of stocks are also high. However as the first phase nears its end, investors typically tend to book profits and exit the market.

The second phase is generally characterised by a steep decline in stock prices, relatively lesser trading activity and a significant reduction in profits of listed companies. Additionally, macroeconomic indicators also turn negative and fall below average. In the third phase market speculators begin to take fresh entry in the market which in turn raises prices and trading volume. In the fourth phase or the last phase of a bear run, stock prices fall slowly. These low prices might attract investors which in turn help the markets in bouncing back after a bear run.

Notably the broader market is in bear-territory as indices such as the Nifty MidCap 100 and the Nifty SmallCap 100 have declined over 20 per cent from their all time highs. Shah said that the  20 per cent decline seen in the indices is a welcome development, allowing for a healthier market structure. However he advised investors to focus on fundamentals rather than reacting to short-term volatility.

“The  20 per cent decline in small caps, following a strong rally, is a welcome development, allowing for a healthier market structure. While sentiment has weakened in the near term, this remains a repricing phase rather than a structural downturn. Investors should focus on fundamentals rather than react to short-term volatility,” Shah said.