How Much More Will The Market Fall?

How much more will the market fall? मार्केट और कितना गिरेगा भाई? Retail investors frequently ask this question when they see the market going down every day. I know, it is not a happy sight to see the market in the red. It is even difficult to see your own portfolio bleeding. No one likes this. The agony, pain, and fear of losing hard-earned money are lingering on the mind. And hence this question.

I never indulge in predicting the market objectively. To be very truthful, no one can. Forget about predicting, even timing the market is a distant dream. However, the so-called TV experts are gung-ho in predicting this number every day. Some one says we have reached the bottom, someone says it will bounce back to earlier high levels, someone says we will see Nifty at the level of 14000. These are all wild guesses. But in reality, the market has always surprised everyone. When you think it will bounce back, it will fall further. When you wish it to fall, it will rise again.

In the past two decades, I have observed one more interesting trait about the market. When the market is rising, all experts talk with extreme enthusiasm. During this phase, everything looks picture perfect. The Indian economy does well, the US economy doing better than the domestic, the inflation is under control, the FIIs are behaving and the earnings look great. The market starts making highs every day. And this is the time when retail investors get trapped. They get lured by this pep talk.

However, when the market starts falling, various reasons are discovered later just to prove this downfall. Everything which was looking picture perfect a few weeks ago, suddenly become imperfect and useless. In a few weeks, the US economy goes into a spin, the Indian economy looks bleak, interest rates start rising, inflation goes beyond control and earnings start deteriorating. The ever optimists on the Dalal street overnight become extreme pessimists.

The bitter truth about the market is that in the short term, it will always be irrational, unpredictable, and ruthless. However, time and again it is proven that in the long term, the market behaves sensibly. The only direction it takes is upwards. Retail investors must understand that if they want to participate in this market, then they must be willing to stay put for the long haul. It is never about timing the market but about spending time in the market. There will be times when the market will remain range-bound for months together. There will be times when the market will go into a bear phase and stay there for years. And there will be times when the market will skyrocket in one month.

The only way to tame this beast is to sit tight, take control of your emotions and focus on your ultimate financial goal. Looking at the index every day doesn’t make any sense. It will only increase your anxiety.

Let me show you how the market behaved over the past two decades. I have researched the data of Nifty 50 Index from the year 2000 to till date i.e. almost for the past twenty-two years. I think this period of two decades is good enough to understand the generic behaviour of the market. Let us have a look at Table no. 1. This shows the Nifty high levels, the low levels, the number of months it took to go from high to low, and the drawdown in % terms.

Table No 1: Nifty 50 Index Drawdown Data Points

SI. No.	Nifty Highest Level	Date of High	Nifty Lowest Level	Date of Low	Months	​% drawdown
​1	​1818	23/02/2000	850	21/09/2001	19	53
2	2014	​09/01/2004	​1292	17/05/2004	4​	35
3	3774	​11/05/2006	2595	14/06/2006​	1	31
4	4245	08/02/2007	3554	05/03/2007	< 1 (16 trading days)	16
5	6357	​08/01/2008	4448	22/01/2008	​<1 (10 trading days)	30
6	4448	22/01/2008	2252	27/10/2008	9	49
7	6335​	08/11/2010	4531	20/12/2011	13	28
8	9119	04/03/2015	6825	29/02/2016	11	25
9	​12430	​20/01/2020	7511	24/03/2020	2	39
10	18604	19/10/2021	15671	08/03/2022	7	15
11			?????	?????	?????	?????

The following points can be deciphered after analysing the above data:-

1. Maximum drawdown of 53 %

2. Minimum drawdown of 16 % (before current fall)

3. Maximum period of drawdown of 19 months with 53 %

4. Minimum period of drawdown of only 10 trading days with 30 %

5. Sharpest fall of 30 % in just 10 trading days

6. From the recent top of 18604, we have only fallen by 15 %

The data shows that the market can behave irrationally anytime. In hindsight, we can only analyse this data and try to learn from it. Remember, now we have only fallen by 15 %. So, statically, there is enough room to fall further. To what level? Is anybody’s guess. However, the maximum fall was 53 % and during the bear phase of the year 2008, we also witnessed a 49 % severe downfall. Hence, it is wise to assume that the market has a tendency to go down by as low as about 50 %.

On technical charts, the support levels are 15600, 15000, 14600, 14000, 13600, 13000 and finally, we may test the Jan 2020 pre-corona high levels of 12400. OOPS!!!!! And even if Nifty reaches to this pre-corona high of 12430, we would have seen a drawdown of only 33 %. This may happen, may never happen. So, we have a long way to go before we can take a breather. Now, let us look at the brighter side through table number 2. Here I have tried to show how many returns one can make if one holds on to the investments for more than five years. Here I have deliberately assumed that the investment is made in one go and that too at the highest level. Further, no averaging is done even though the market has corrected considerably. That means once bought, no action is initiated henceforth. The results are encouraging.

Table No 2: Nifty 50 Index upswing Data Points

SI. No.	Level at which bought (highest)	Date Bought	Date held till (more than 5 years)	Number of years held	Level achieved	% Returns
1	1818	23/02/2000	11/05/2006	6	3774	107
2	1818	23/02/2000	08/11/2010	10	​6335	248
3	1818	23/02/2000	20/01/2020	20	12430	583
4	1818	23/02/2000	19/10/2021	21	18604	923
5	2014	​09/01/2004	08/11/2010	6	6335	214
6	2014	09/01/2004	20/01/2020	16	12430	517
7	6357	08/01/2008	04/03/2015	7	9119	43
8	6357	08/01/2008	20/01/2020	​12	12430	95
9	6357	08/01/2008	19/10/2021	14	18604	192
10	8957	05/03/2015	19/10/2021	6	18604	107
11	8957	05/03/2015	13/05/2022	7	15741	75

Analysis:-

1. The maximum returns achieved are 923 %. That is more than 10 times. If you had invested Rs. 10 Lakh in the year 2000, that would have grown to Rs. 1 Cr in 21 years.

2. Even in the darkest bear phase of the year 2008, the returns are 43 %

3. The longer the holding period, the higher the returns

4. The probability of making a loss becomes almost zero beyond six years

Conclusion and suggestion:-

1. No one can predict the market. It is futile to do so. No one can even time the market. The market will always surprise you on the wrong side

2. If you are invested in the market, be willing to see a drawdown of at least 50 % anytime

3. Diversify your portfolio between direct equity and mutual funds. The higher the allocation to mutual funds, the lesser will be the downfall and the higher will be the stability

4. SIP is the best instrument to take advantage of such drawdowns. Never ever stop ongoing SIP. Your probability of making decent profit increases dramatically with a continuation of SIP for more than five years

5. Keep investing more in your existing mutual fund schemes at every 10 % dip

6. Remember cash is the king. Always keep adequate cash in hand to take advantage of falling markets

7. Once invested, remain invested till your financial goals are achieved

8. Market will taste your patience, your emotions. Let us not get carried away by the extreme emotions like greed and fear

9. During such falling times, there will be a lot of noise created every day by market pundits. Ignore all of them else they will ruin your chances of making profit

10. Like how we practice Vipaasaana, just observe the markets as they are. There is no need for you to react or even get bothered by these transitory moves

11. Remember, wealth can only be created by waiting patiently

12. Defending capital and focusing on risk rather than returns is the key