A bull market is a sustained rise in stock prices, while a bear market is a prolonged fall—often defined by a ±20% move in a broad index like Nifty 50 or Sensex. These phases influence valuations, sector leadership, risk, and investor behaviour, so your asset allocation and SIP discipline should adapt accordingly. (Investopedia, FINRA)
Why this matters
Every Indian investor experiences multiple bull and bear phases. Knowing the differences helps you set expectations, avoid panic, and position your portfolio with discipline rather than emotion. We’ll cover definitions, indicators, Indian market examples, common mistakes, and practical strategies for each phase.
What is a bull market?
A bull market is a period of broadly rising prices, improving sentiment, and supportive economic conditions. A commonly used convention is a rise of 20% or more in a major index from a prior low. It often features expanding breadth, higher risk appetite, and leadership from cyclicals or growth sectors. (Investopedia)
What is a bear market?
A bear market is a period of sustained declines—commonly 20% or more from a peak—in a broad index, typically accompanied by negative sentiment and higher volatility. It can be brief and cyclical, or longer and linked to economic slowdowns. (Investopedia, FINRA)
Bull vs Bear at a glance
| Dimension | Bull Market | Bear Market |
|---|---|---|
| Price trend | Higher highs & higher lows | Lower highs & lower lows |
| Typical threshold | ~+20% from trough | ~−20% from peak |
| Valuations | Expand (P/E, P/B re-rate) | Compress (multiples contract) |
| Volatility | Usually moderates | Usually spikes (e.g., India VIX) |
| Sector tone | Cyclicals, small/midcaps often lead | Defensives (FMCG, Pharma) often hold up |
| Sentiment | Optimism, FOMO | Pessimism, flight to safety |
| Investor behaviour | Chasing returns | Capitulation, stopping SIPs (a mistake) |
Notes: The 20% rule is a market convention, not a regulation. Volatility often rises in bears; India VIX data and methodology are maintained by NSE. (FINRA, NSE India)
Indian market context: recent cycles
- COVID-19 sell-off (2020): Nifty 50 hit an intraday low of 7,511 on 24 Mar 2020, before beginning a powerful recovery—an illustration of a rapid bear-to-bull transition. (NDTV Profit, idbidirect.in)
- Long-run resilience: NSE’s “25 Years Journey of Nifty 50” shows most calendar years have been positive, reminding investors that bears are part of a longer upward journey. (archives.nseindia.com)
- SIP behaviour: AMFI’s monthly releases document steady SIP inflows across cycles, underscoring the value of staying invested through volatility. (AMFI India)
Simple ways to identify each phase
Price-based markers
- Drawdown (from peak):
Drawdown % = (Peak − Current) ÷ Peak × 100
Persistent drawdowns ≥20% on major indices often mark a bear. - New highs/lows: Rising count of 52-week highs (bull) vs 52-week lows (bear).
Trend & breadth
- Moving averages: Sustained close above the 200-DMA with higher lows supports a bull; persistent below-200-DMA with lower highs suggests a bear.
- Market breadth: More advancers than decliners across sectors favors a durable bull.
Volatility & sentiment
- India VIX: Elevated readings usually coincide with stress; normalizing VIX often accompanies recoveries. NSE provides historical VIX data for reference. (NSE India)
How to invest across bull and bear phases
In a bull market
- Let winners run—within a plan: Use trailing stop-loss or rebalance bands to avoid overconcentration.
- Stagger entries: Prefer SIPs or staggered lump sums to manage timing risk.
- Watch valuations: Track P/E and P/B against long-term medians for the index and sectors.
Quick formulas
- CAGR (for multi-year bull runs):
CAGR = (Ending Value / Beginning Value)^(1/Years) − 1 - Basic Risk-Adjusted Return (Sharpe, annualized):
(Portfolio Return − Risk-free Rate) / Portfolio Volatility
In a bear market
- Stay the course with SIPs: Cutting SIPs crystallizes sequence risk; Indian AMFI data shows SIPs have historically continued and benefited from rupee-cost averaging during drawdowns. (AMFI India)
- Raise quality & liquidity: Prefer strong balance sheets and stable cash flows; consider a tilt to defensives when macro risk is high.
- Rebalance systematically: Move back toward your target asset mix as equities get cheaper.
- Use hedges judiciously: Experienced investors may use puts or covered calls; novices should be cautious with leverage.
Sector patterns often seen in India
- Early bull: Banks/financials, industrials, capital goods, and cyclicals can lead as credit and capex cycles improve.
- Late bull: Momentum broadens to small/midcaps; valuations stretch.
- Bear / risk-off: FMCG, Pharma, and utilities tend to be relatively resilient as earnings are less cyclical.
(Sector rotation is not guaranteed; evaluate fundamentals and valuations each cycle.)
Common mistakes to avoid
- Attempting to perfectly time tops/bottoms. Even professionals struggle to call turning points consistently. (Investopedia)
- Stopping SIPs in fear. This forfeits the benefit of buying more units at lower NAVs. AMFI’s monthly data underscores why consistency matters. (AMFI India)
- Ignoring risk limits in bulls. Rebalance when an asset crosses a pre-set band (e.g., ±5%) to protect gains.
- Panic-selling in bears. Historic recoveries after large drawdowns show why having an IPS (Investment Policy Statement) helps you hold good assets through volatility. (archives.nseindia.com)
Mini-playbook for Indian investors
Set your core allocation:
- Equity: based on goals/horizon (e.g., 60–80% for long-term growth).
- Debt: high-quality, duration aligned with rate outlook.
- Gold/alternatives: 5–15% for diversification.
During bulls
- Review position sizes monthly; trim extreme winners.
- Keep a cash buffer (e.g., 5–10%) for opportunities without derailing returns.
During bears
- Keep SIPs running; add tactical lumps when valuation metrics improve.
- Revisit emergency fund and insurance; avoid forced selling.
Real-world checkpoints (India)
- Price lows & reversals: Nifty 50’s 7,511 low on 24-Mar-2020 is a useful historical anchor for stress-testing your plan. (NDTV Profit)
- Data sources to bookmark:
- NSE historical index & VIX data for cycles and volatility. (NSE India)
- AMFI monthly datasets for SIP/AUM trends to stay objective during downturns. (AMFI India)
FAQs
Is the 20% rule “official” in India?
No. It’s a widely used market convention, not a SEBI regulation. It’s helpful as a rule of thumb but context matters (breadth, earnings, liquidity). (FINRA)
How long do bull and bear markets typically last?
Durations vary. Some bears are short and event-driven (e.g., COVID shock), while others last longer with macro slowdowns. Bulls often outnumber bears across decades, but paths are uneven. (Investopedia, archives.nseindia.com)
Should I stop SIPs in a bear market?
In most cases, no. SIPs benefit from lower NAVs via rupee-cost averaging; AMFI’s monthly data shows persistent SIP participation across cycles. (AMFI India)
What indicators should I watch?
Index trend vs 200-DMA, breadth, valuation multiples, and India VIX for risk regime. (NSE India)
Key takeaways
- Bull = sustained uptrend; Bear = sustained downtrend, often referenced by the ±20% convention. (Investopedia)
- India’s markets have historically recovered from shocks; plan for cycles rather than predicting them. (archives.nseindia.com)
- Process beats prediction: Maintain SIPs, rebalance, and use data (NSE, AMFI) to stay objective. (NSE India, AMFI India)
Suggested internal links for Endovia Wealth:
- What Drives Market Indices Like Nifty and Sensex?
- How to Read Stock Charts
- SIP vs Lump Sum: What Works When?
- Risk Management 101: Building an Investment Discipline
Sources: Investopedia (definitions and conventions), FINRA (20% bear threshold), NSE (Nifty & VIX historical data), NDTV Profit/Bloomberg (COVID low reference), AMFI (SIP trends). (Investopedia, FINRA, NSE India, NDTV Profit, AMFI India)Disclaimer: This article is for education, not investment advice. Markets involve risk; consider consulting a SEBI-registered adviser.