Market a cycle?

Olga Tellis

There is a lively discussion going on whether the current phase market is going through is a bear phase. One view expressed is that every eight years the market sees a corrective cycle where it corrects by 58 per cent.

It happened in 1992, then 2000 and currently. If this holds true then the Sensex should go down to 9000 or 9500.

However, broker Mr Samir Hemani says, there is one big difference between today and 1992 and 2000. These two bear phases were brought on by scams - the Harshad Mehta and Ketan Parekh scams.

In 1992, the market leader was ACC that had touched a price of Rs 10,000 thanks to Harshad Mehta.

In 2000, Infosys led the information technology stocks and its price touched Rs 25,000.

On both the occasions as Mr Hemani points out, the leaders traded at a PE of 100. This time the leader of the bull run could be said to be Reliance Industries Ltd (RIL).

The scrip traded at 15 PE. So, he says, fundamentally the previous two bear phases cannot be compared to what is happening in the market since January 2008. In the phase that the market is going through, anything can happen. If crude touches $200 a barrel or inflation jumps higher then nobody knows what could happen to the market.

Bear or bull correction?

So is it a bear market or a bull market correction? If it is a genuine bear market it could last for at least 12 months. But if it is a bull market correction then this downslide could be fast and swift and the bull market should resume soon. The 1992 bull market had started in 1987 when the Sensex was at 300 and by 1992 it touched 4,500, a 15-fold rise in five years.

In 2000, the Sensex rose from 3,000 points to touch 6,000 mark. But the bull phase was only in the information technology stocks that went up 100 times or more. Bengaluru technology bellweather Infosys which had come out with a public issue at Rs 175 went up to Rs 2,000.

Waiting for reforms

Now that the Manmohan Singh government has won the trust vote the market seems gung ho about him undertaking financial sector reforms.

The next move of the market should tell us whether it will end, says Mr Hemani. If it makes a lower top and a lower bottom then it signals a bear market.

However, if it corrects and then goes to a higher top then it would mean what we are witnessing is a bull correction.