Bull markets know no high and bear markets know no bottom. So the question to ask is not how much the market can fall but the right question is “is it a correction or a bear market?"

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Of course, we will know the answer with the benefit of hindsight perhaps one year from here. For now, you have to play the market with probability game and hope that this is a brutal bull market correction and not a bear market.

Yes, the screen looks like the market is entering bear market. Reliance has collapsed 16 percent in four days, Bajaj Finance is down 33 percent from its highs and in midcaps and smallcaps, the fall has been 30-80 percent.

What this correction has proved is that Indian market is still so dependent on where crude prices move. For a country of a size of India, we are still hostage to moves in prices of one commodity. But that’s a fact. As is the fact that this is a macro correction and if you try to be cute in this market by looking at micro numbers, this market is going to give you a hiding.

What this correction has also proved is that despite all the bravado about domestic funds driving the market and the market getting immune to Foreign Institutional Investor(FII) outflows, the FII is still the dominant player. The big reason for that is legacy. The FII owns a large part of non-promoter holding of India’s biggest companies. So if there is 1,000 crore of selling in Reliance by foreign funds in this environment, it is very tough for domestic players to absorb that.

The silver lining? Well for starters we are taking some of the ownership back from FIIs to DIIs and promoters. That to me is going to keep market in good stead because when the bull market resumes, you will see the same FIIs coming back with vengeance. Till then, you have to respect the screen and play along.

Don’t ask the question- how much can it fall? Wait for the market to stop falling. Corrections like these won’t have V shaped recovery. There is no brownie point for getting the bottom right. For now, either hedge your portfolio or try to play on the short side. If you are an investor, this is a good time to put 33 percent money to work in bluest of blue chips and then see whether this is just a correction or a bear market and do remember, the biggest wealth is created when you build portfolios in sharp corrections/bear markets.

First Published:Oct 8, 2018 8:33 AM IST