BULL MARKET VS BEAR MARKET

 BULL MARKET-:

 A bull market is the condition of a Financial Market in which prices are rising or
are expected to rise.

 The term "Bull Market" is most often used to refer to the Stock Market but can
be applied to anything that is traded, such as bonds, real estate, currencies, and
commodities because prices of securities rise and fall essentially continuously
during trading.

 A Bull Market takes effect when stock prices have broadly increased by at least
20% since the last market downturn. Bull market conditions can last for decades,
and many successful investors have bet very wrongly by trying to predict the end
of a bull market.

 How to Recognize a BULL MARKET

Such indicative bullish trends can be identified through the flowing parameters -

• Market rally

I. Any sustained movement of the stock prices in any direction is termed as a

market rally. A share market bull rally for an extended period mainly occurs
due to expansionary demand-side policies, such as lower interest rates and
extensive tax rate cuts. Governments can also undertake extensive expenditure
for the development of the country, through infrastructure construction,
building schools, medical centres, etc.

II. An increased income level due to such expansionary policies ensures sufficient
funding available for investment in the stock market, thereby increasing the
stock prices owing to higher speculative demand.

• Volatility index

I. A rising volatility index is a major indicator of a bull market, as price

fluctuations are more significant during a bullish market trend. The volatility
of the Indian stock market is indicated by the NIFTY index option prices,
 which reflects the sensitivity of all securities listed on the National Stock
Exchange (NSE).

• Lower bond yields

i. Zero risk securities are often associated with lower interest rates during a share
market bull. This encourages investors to pool their money in equity
instruments available in the stock market, at higher associated risks.

 Causes of a Bull Market

• Strength of an economy

 A bull market is prevalent in countries…having fundamentally sound policies

in place, along with proper implementation regime to ensure adequate
production of goods and services, and suitable market conditions facilitate
sales.

• Foundation of large-cap companies

 Large-cap companies are the primary component in the major benchmark

indices, which serve as a crucial indicator of stock market bull or bear.
Unsystematic fluctuations tend to affect small and mid-cap companies more,
which can bear a false indicator regarding the overall market trend regarding
growth. Bullish markets are mainly reflected through rising benchmark index
points, as large-cap companies demonstrate significant advancement having
long term effects.

• Business cycle fluctuations

 The business cycle comprises an upward swing known as the boom period of
an economy, when the productive capacity and growth rates rise substantially,
as indicated through rising GDP rates and bullish market trends. Also, the
unemployment rates in a country are significantly low, with rising per capita
income of individuals. With more money to spend, speculative demand is on
the rise, indicating a bullish market trend.

 What Should Investors Do?

 Bullish markets allow all functioning companies to thrive for an ample period,
which is indicated through increased profitability and top-line revenue, leading
to a rise in stock prices

 Investors choosing to build their portfolio through large-cap companies can

benefit from periodic dividend payments, while individuals investing in small
 and mid-cap companies enjoy robust gains during the resale of procured
securities. This leads to long term gains for investors, who can choose to resell
their securities at the peak of the business cycle.

 In a bullish market, the 'buy and hold' strategy is most useful, as investors
choosing to withhold their securities are bound to realise dividend yields.
Also, substantial capital gains can only be enjoyed if investors choose to hold
their securities until prices rise significantly.

 Increased 'buy and hold' policy is often undertaken by investors who are well-
versed with the working of the stock market, who continue purchasing
securities till the upward trend in stock prices prevails. This increases the
overall capital gains, realised once the market readjusts post-market
correction, which leads to higher stock prices.

 Thus, bull markets are an excellent time frame for beginners to start investing
in the stock market, as chances of incurring substantial losses are minimal.
Most companies having a developed foundation can reap significant profits
during this time, ensuring returns at 15-20% on principal.

 SCAM – 1992, The BIG BULL

 Another major bullish trend occurring in India was caused by 'The Big Bull'
“Harshad Mehta”, who manipulated the stock prices through funds
embezzled from public sector banks to realise profits.

 This created a positive outlook towards the stock market investments, leading
to a bullish market trend encouraging beginners to partake in such funds as
well. This led to subsequent profits realised in the long run, indicating a bull
market trend.

 It was alleged that Mehta engaged in a massive Stock Manipulation scheme

financed by worthless bank receipts, which his firm brokered for "ready
forward" transactions between banks.

 Mehta was convicted by the Bombay High Court and the Supreme Court of

India for his part in a financial scandal valued at ₹100 billion (US$1.3 billion)
which took place on the Bombay Stock Exchange (BSE). The scandal exposed
 the loopholes in the Indian Banking System and the Bombay Stock
Exchange transaction system, and consequently the SEBI introduced new rules
to cover those loopholes.

 BEAR MARKET -:

1. Bear Market is a situation when the stock market experiences price declines
over a period of time. Generally, a bear market is declared when the price of
an investment falls at least 20% from its high.

2. In other words, a trend of falling stock prices for an extended period is

considered a bear market. Substantial deterioration of at least 20% or more has
to be recorded for a market to be classified as bearish.

3. It is typically characterised by a falling speculative demand among residents,

thereby reducing the aggregate cash flow of the capital sector in an economy.

 How to Recognize a Bear Market?

• Falling stock market indices

 A downtrend in the major benchmark indices operating in the country

indicate a bear market, wherein investors prefer holding their money or
deposit the same with riskless instruments rather than invest in the
stock market. Nonetheless, a bear market can only be declared if the fall
in such index values is higher than 20% and prevailing for a period of
at least 60 days or more.

 This differentiates stock market variations owing to external factors or

uncertainty prevailing in the economy, which might only have a short-
lived impact. Bearish markets, on the other hand, report figures
indicating slowdown of a country for at least 2 months or more.

• Recession
  As a stock market bear often creates a negative outlook towards
investment, individuals usually prefer hoarding their money in fear of
incurring losses. Investors adept with the workings of the stock market
often develop a mindset regarding a further fall in the stock market
prices in such bearish circumstances, further aggravating the rate of fall
of such stock prices.

 Combined with low aggregate demand for general goods and services
manufactured, a higher supply caused the general price level to decline
sharply, marking a recession. Such economic conditions are
characterised with persistently low demands and falling price levels by
most functioning sectors of the Country, resulting in a fall in the GDP
of the country.

 Causes of BEAR MARKET -:

1. Unexpected fluctuations

Fluctuations can arise due to socio-economic turmoil in a country as well. As

political decisions impact the performance of major companies operating in an
economy, investments are likely to take a hit as well.

2. Global mind-set

1. With rising interdependence among the countries in the world, any fluctuation
in the performance of a sizable major economy is bound to have repercussions
in a domestic economy. A recent example can be cited in this respect when
tensions between America and China, two of the biggest economies in the
world, caused uncertainty among Indian investors as well, leading to a fall in
the Sensex points

2. As relations between the two global superpowers are likely to impact the
Indian economy as well through fluctuating imports and export revenues, the
profitability of domestic industries is expected to vary according .

3. World Recession

1. A global pessimistic mindset can trigger a worldwide recession, generating

a bear market in all major stock markets operating in the world. As companies
tend to underperform owing to reduced market demand for their products, the
respective share prices tumble on stock exchanges as well.

2. Such stock market fluctuations affect both large, mid and small-cap
companies, wherein a more significant effect is observed in the small and mid-
cap businesses, owing to their high degree of volatility.
  What Should Investors Do?

1. A stock market bear witnesses receding investments from individuals having a

lower aptitude for risk initially during initial plummeting prices. Such an
investment strategy often leads to significant losses on the part of investors,
thereby reducing their speculative investment demand even further.

2. Individuals disregard the importance of long term growth in this regard and
sell procured securities in fear of short term losses. A bear market
automatically adjusts in a couple of months to reflect the real value of stocks,
leading to capital gains of shareholders who purchased respective securities at
reduced costs.

 COMPARSION OF BULL AND BEAR MARKET IN SOME FACTORS

1. ECONOMY PRICE -:

In Bull Market, Stocks can give higher returns for the higher risk they entail.
Equity investment returns are good during this time.

In Bear Market, preserving capital and stable income becomes

important. So, less risky investments like bank fixed deposits, gold
investments and government bonds are sought.

2. GROSS DOMESTIC PRODUCTION -:

In Bull Market, High GDP growth is expected, economic demand increases,

leading to higher industrial output, higher sales, and turnover

In Bear Market, Low GDP expectations, dip in demand leading to the decline in
the production of goods, low sales volumes, and turnover.

3. INFLATION -:

In Bull Market, Due to increased demand, the production pace continues to grow
and proves to be encouraging for wholesalers. Wages rise and suppliers demand
higher prices.

In Bear Market, Demand shrinks or remains steady as only essentials are required.
Food, clothing and FMCG prices increase and put pressure on the retail segment .

4. Interest Rate -:
In Bull Market, Interest rate cycle is on an uptrend and foreign investors get attracted
to the high interest rate environment. This helps to control the excess liquidity in the
economy.

In Bear Market, RBI reduces the interest rates to stimulate liquidity and capex to
boost production; foreign investors avoid investing or pull out during this time.

5. Employment-:

In Bull Market, the economy is thriving, industry is booming, and production is

flourishing. Growth is favourable, leading to greater employment.

In Bear Market, the economy is sluggish, and segments of industrial and

production units get affected. This leads to lay-offs to curtail costs and leads to
higher unemployment levels.

BY-: DIVYANSH UMMAT

ROLL NO. -: 2021UBA9031

BRANCH -: BBA, Management studies

Phone NO.- 9667344900