The current epoch is that of unbridled finance capitalism. Whether the context is a national economy or an integrated international economic unit like the European Union, market is the keyword in all scenarios. Following the military, ideological or economic defeat of all other paradigms of economic organization- Nazi, Semi-authoritarian, socialist, mixed economy and communist- the world has come to completely rely upon the American model of finance capitalism. This has even left a deep imprint on the economy in India which had, until 1991, insulated itself from market volatility and the resultant disturbances. However, after the systematic reform of the past closed economic system; there is an explicit attempt on the part of government of India to go on with neo liberal economic policies. This involves the gradual opening up of even other sectors of the economy which have been, so far, under the close scrutiny of State authorities and regulatory institutions.
Need to understand Bull Market v/s Bear Market Dual
As the role of the market in the day to day running of our economic system gradually increases, it becomes necessary for the Indian bourgeoisie to understand and brace itself for the imminent volitions. The recent developments in the market scenario only underline this need. The stagnant situation after the 2008 mortgage backed securities bubble and the following recession has resulted in massive flight of capital from the national economy. This has inevitably hurt the common investor as well. The pulling out of funds by foreign as well as domestic heavy investors has led to a sluggish market situation wherein small investors find themselves deep in the puddle. To top it all, recovery has been marred by the less than satisfactory performance of the Indian industrial growth which was once trading at a high rate. Though the services sector holds on its own, it is a moral and practical prerogative on the part of investors to understand the market trends and plan to tackle the dual of Bull Market v/s Bear Market.
Bull Market V/s Bear Market: Meaning, Scope and Implications
Before we attempt to plan on the investment moves of any orientation it becomes necessary to understand the basic concept underlying the Bull Market v/s Bear Market scenario. For that one needs to understand the very nature of the stock market, the base concept of ‘market trends’ and also its types; based on their life spans. A market trend is the supposed streak within a financial or more particularly a stock market to move in a particular direction. In simple words, it is an apparently predictable price tendency in a share market depending upon the market situation. Now market tendencies can be broadly classified into ‘secular market trends’ for long term time spans, ‘primary market trends’ for medium term time spans and ‘secondary market trends’ for short term time spans. A secular market trend lasts for a period anywhere between 5 to 25 years and constitutes of a number of primary trends. On the other hand, primary trends lasts for one year or more, whereas, secondary trends last for a few weeks or a few months.
Bull market is a type of primary market trend. It involves increasing confidence on the part of investors; whether institutional or private, in the profitability of investment in the share market. This leads to actual increase in the investment in company stocks in anticipation of further price increase, culminating in a general upward trend in the market as a whole. Though it is primarily used for share market situations it is not limited to only that and can also be applied to currency, bonds and the commodities market.
On the flip side, Bear Market is another type of primary market trend. However, it is characterized by a general decline in the share market for successive trading days, during which investors’ confidence and willingness to pump in money in the stock market is replaced by widespread and self sustaining fear of losing profit/ investments and pessimism. As the prices of stocks and securities come down, the pessimism within the investor’s community further grows and reinforces the tendency to avoid making large investments and taking risks. This, in effect, results in the arrival and settling in of a bear market scenario. Bear Markets are usually the result of recession, industrial slowdown or stagnation, continual inflation and a high rate of unemployment.
Hence, considering the profound impact bull market v/s bear market cycle has on the wealth generating capacity of a national economy, it is necessary for a common investor to guard for such fluctuations in the market and invest accordingly.