Looking at the current fall from the lens of historical drawdown
What has accentuated this fall is higher than expected inflation globally and most importantly in US
US bellwether equity index, S&P 500 is down by more than 20 per cent from its peak and is in bear territory technically. What has accentuated this fall is higher than expected inflation globally and most importantly in US, the mother of all equity markets. This means an aggressive interest rate hike is expected, which does not augur well for the equity market.
At home, the situation is no different as equity indices in India have already corrected by little more than 15 per cent from the all-time high it reached on October 19, 2021. Sensex after touching the lifetime high of 62245.43 (intraday) touched 52762 on May 19, 2022, showing a fall of almost 18 per cent. Historically (since 1979) we have seen 14 such instances when Sensex has declined by more than 18 per cent.
Top Drawdowns (Sensex) Since 1979
|
From
|
Trough
|
To
|
Fall
|
Total Days
|
To Trough (Days)
|
Recovery (Days)
|
|
09 January 2008
|
09 March 2009
|
04 November 2010
|
-61%
|
696
|
285
|
411
|
|
14 February 2000
|
21 September 2001
|
02 January 2004
|
-56%
|
976
|
404
|
572
|
|
28 April 1992
|
26 April 1993
|
12 August 1994
|
-54%
|
489
|
195
|
294
|
|
05 June 1986
|
28 March 1988
|
30 September 1988
|
-41%
|
493
|
384
|
109
|
|
13 September 1994
|
04 December 1996
|
14 July 1999
|
-41%
|
1157
|
522
|
635
|
|
11 October 1990
|
25 January 1991
|
26 July 1991
|
-39%
|
155
|
46
|
109
|
|
15 January 2020
|
23 March 2020
|
09 November 2020
|
-38%
|
206
|
48
|
158
|
|
11 May 2006
|
14 June 2006
|
13 October 2006
|
-29%
|
111
|
25
|
86
|
|
08 November 2010
|
20 December 2011
|
30 October 2013
|
-28%
|
744
|
277
|
467
|
|
15 January 2004
|
17 May 2004
|
30 November 2004
|
-27%
|
221
|
83
|
138
|
|
30 January 2015
|
11 February 2016
|
03 April 2017
|
-23%
|
538
|
257
|
281
|
|
01 March 1986
|
21 March 1986
|
04 June 1986
|
-20%
|
55
|
14
|
41
|
|
06 January 1982
|
21 July 1982
|
23 December 1983
|
-19%
|
375
|
105
|
270
|
|
23 July 1985
|
01 October 1985
|
02 January 1986
|
-19%
|
87
|
37
|
50
|
|
06 July 1989
|
08 February 1990
|
04 April 1990
|
-17%
|
159
|
126
|
33
|
|
15 October 1999
|
01 November 1999
|
03 January 2000
|
-16%
|
53
|
11
|
42
|
|
09 February 2007
|
05 March 2007
|
02 July 2007
|
-15%
|
97
|
16
|
81
|
|
19 October 2021
|
19 May 2022
|
<NA>
|
-15%
|
159
|
145
|
NA
|
|
18 June 1979
|
14 December 1979
|
05 August 1980
|
-14%
|
239
|
115
|
124
|
|
29 August 2018
|
26 October 2018
|
02 April 2019
|
-14%
|
146
|
39
|
107
|
|
21 November 1988
|
06 January 1989
|
03 April 1989
|
-13%
|
79
|
23
|
56
|
|
05 October 2005
|
28 October 2005
|
25 November 2005
|
-13%
|
34
|
17
|
17
|
|
23 July 1981
|
09 September 1981
|
04 November 1981
|
-12%
|
55
|
27
|
28
|
|
27 April 1989
|
31 May 1989
|
30 June 1989
|
-12%
|
43
|
21
|
22
|
|
10 March 1992
|
18 March 1992
|
24 March 1992
|
-12%
|
9
|
7
|
2
|
|
09 March 2005
|
19 April 2005
|
20 June 2005
|
-11%
|
73
|
28
|
45
|
|
25 July 2007
|
21 August 2007
|
19 September 2007
|
-11%
|
40
|
19
|
21
|
The peculiarity of the current fall is that it is one of the slowest declines. Last time we saw such a gradual decline in the Sensex was during the 2015 fall. It took almost 217 days for Sensex to fall first 15 per cent towards its journey to fall by 23 per cent in 257 days. Currently it took 145 days to fall first 15 per cent. Earlier on an average, Sensex had taken 71 days to fall 15 per cent.
What This Drawdown Says About Further Fall
There are 16 instances earlier when Sensex has fallen by more than 15 per cent from its peak. So, the current fall in the market that has been since October 2021 is already eight months. All the previous fall in Sensex that has lasted for more than eight months has on a median basis witnessed a fall of 39 per cent. Out of this 39 per cent, in the first eight months, they have fallen between 60 per cent and 85 per cent of their total fall. So, if we take the mean of this fall and extrapolate that fall in the current context, we can expect the market to fall a total 25 per cent. So, from its all-time high of 61765, we can fall up to 46500. This means we can fall by another 10-12 per cent from the current level of 52541.
We may not touch that figure if we see a strong DIIs inflow, which will support the indices. Predicting bottom or top is very difficult, however, the above analysis shows that we are near the bottom and a further fall of 10 per cent is that we can expect the max fall from hereon.