Imagine you’ve invested your hard-earned earnings in the equity markets, and all of a sudden, they go south. Well, the key in such situations remains that your (the investor’s) sanity and balance should not follow suit.
Rather, this downturn may actually be an opportunity for you if you keep your head. In the equity markets, every fall generally has a bounce-back that can help you to gain immensely, provided you show some patience and stay the course.
Opportunity in crisis?
“Crashes are painful, but they’re also necessary — they’re the market’s way of purifying excess, humbling arrogance, and rewarding discipline,” says Devang Mehta, Deputy Managing Director & CIO – Equity NDPMS at Spark Capital.
From his 25 years of experience in the Indian stock market, Mehta shares some hard lessons. “If you can stay rational when the world goes irrational, bear markets stop being threats and start being invitations,” says Mehta.
While bear markets can be unsettling, they also present a powerful opportunity for long-term growth, says Thomas Stephen, Head – Preferred, Anand Rathi Share and Stock Brokers.
History shows that market downturns are a natural part of the investing cycle. Those who stay patient and invest in strong assets at lower prices have often been rewarded with substantial gains over time.
Even the world’s most followed investor, Warren Buffett, has famously said, “Widespread fear is your friend as an investor because it serves up bargain purchases.”
Put simply, when markets decline sharply, high-quality businesses are frequently available at prices that don’t reflect their true value. While many react emotionally and sell in haste, thoughtful investors see a chance to buy with clarity and confidence.
“Market downturns are historically strong entry/accumulation opportunities, not exit points,” says Ashish Padiyar, Founder & Managing Partner, Bellwether Associates LLP. This fact is especially relevant for retail investors who benefit most from rupee-cost averaging and long holding periods.
So bear markets are not to be feared and may actually be an opportunity for the investor.
Early signs of bear market
Interestingly, there are signs that the discerning investor can use to know when a bear market is starting.
Cyclical and discretionary sectors — real estate, automobiles, consumer durables, and financials — often fall first, because they are highly sensitive to economic slowdowns, interest-rate changes, and weakening consumer sentiment.
High-beta and growth-oriented segments, including technology, midcaps, and other richly valued stocks, also tend to correct early as liquidity tightens and stretched valuations come under pressure.
What signals bear market end?
If there are signs of a bear market emerging, there are also signals indicating its eventual end.
“Some cyclicals and financials typically lead the market recovery, with sectors like automobiles, cement, banks, capital goods, and other consumer cyclicals turning up first,” says Stephen. This occurs as markets begin to price in improving credit conditions, rising demand, and a return of risk appetite. Technology may also rebound early, particularly if it was heavily impacted during the downturn, supported by renewed liquidity and policy-driven growth momentum.
“A bear market usually ends when a clear shift appears across market indicators,” Stephen adds. First, intense fear and wild price swings start to subside, signalling that the worst of panic selling is over. Then, even when negative news emerges, the market holds its ground or declines less sharply, demonstrating resilience.
Moreover, the rally broadens: rather than just safe-haven sectors rising, beaten-down cyclical stocks like banks and autos begin to lead, reflecting renewed confidence in economic recovery.
Finally, this turnaround is supported by improving data, supportive policy moves, and big investors returning to buy. “Together, these signs mark the transition from downturn to recovery,” says Stephen.
Which sectors lead the recovery?
“Defensives shine during the fall. Cyclicals shine after the fall,” is Mehta’s take on how the various segments of the markets perform during and after the bear market phases.
“At the end of a bear market, the first sectors to recover are typically Banks/Financials, Autos, and Capital Goods,” says Padiyar.
Banks/Financials recover because credit costs peak early and liquidity improves; historically, Nifty Bank has rallied 30–40% in the first 3 months after market bottoms (2009, 2020).
Autos recover when demand cycles turn quickly once consumer confidence stabilises; volume recovery usually precedes GDP recovery by 1–2 quarters.
Padiyar also notes that FII selling slows or buying emerges, signalling that Indian equities are coming out of a bear market. In both 2013 and 2020, FII flows turned net positive 1–2 months before markets reversed. As an example: Post COVID bottom (Mar 2020), FIIs bought ₹65,000+ cr in the next quarter.
Finally, capital goods/infra as order inflows and government spending pick up early in a recovery cycle; companies often report 10–20% orderbook growth before the broader economy turns.
“Every crisis I’ve lived through — 2000, 2008, 2020 — has taught the same unforgiving lesson: markets collapse fast, recover faster, and reward those who keep their heads when the crowd loses theirs,” says Mehta.
After the GFC (global financial crisis), Nifty TRI compounded at 23% for 5 years. After COVID, the market doubled in 18 months. Across crises, 3-year post-crash returns sit comfortably above 20% CAGR. People call this a mystery. It isn’t.
“A crash is simply financial Darwinism — the weak positioning dies, the strong positioning survives, and the disciplined get to buy the future at a discount,” says Mehta.
Beating the downslide
So the markets are in a tailspin, and stocks are falling. There may be some solutions even here.
“Actively managed mutual funds have the potential to outperform their benchmark, particularly during market declines, by focusing on capital preservation,” says Stephen.
Through strict risk management, disciplined valuation checks, and strategies aimed at limiting losses, these funds can cushion downturns. The primary advantage lies in losing less during market falls, which ultimately enhances long-term portfolio growth.
They (actively managed MFs) can’t escape the gravity of a bear market — but they can land softer and take off faster.
Actively managed mutual funds can beat a bear market by using strategies like defensive stock selection and asset allocation shifts (bonds, cash), but data shows divergence across similar schemes and mandates.
Bear markets and the recovery – some examples
Between 2000 and 2020, the Indian equity market witnessed three major corrective phases, each differing in scale and impact, according to data compiled by Anand Rathi.
The first occurred during the dot-com era, when the Sensex slipped from 5,444 on 13 January 2000 to 4,768 by 10 October 2003, a relatively modest decline of 12.41%, as India had limited exposure to technology-heavy businesses. Yet the market went on to climb nearly threefold over the following 4–5 years.
The second and most severe downturn came during the Global Financial Crisis, with the Sensex tumbling from 20,873 on 8 January 2008 to 8,160 on 9 March 2009, a sharp 60.91% correction, one of the deepest in India’s history. This was followed by a powerful rebound, delivering roughly 190% returns in just three years.
The third major fall unfolded during the COVID-19 shock, when the index dropped from 41,613 on 26 January 2020 to 25,981 on 23 March 2020, a swift 37.56% decline. Remarkably, the market fully recovered and doubled within 18 months.
Similarly, the S&P 500 declined from 1,395 (11 Mar 2000) to 776 (9 Oct 2002) in the dot-com bust, from 1,565(9 Oct 2007) to 1,036 (1 Nov 2009) in the GFC, and from 3,386 (19 Feb 2020) to 2,237 (23 Mar 2020) during COVID yet fully recovered after each fall, including a record-fast recovery in 2020.
How other asset classes ride out the bear market
Crises trigger a reshuffling of global fear:
• Government bonds: Often rally as yields fall — the classic safety valve.
• Gold: Usually rises; it’s humanity’s oldest crisis hedge.
• Silver: More industrial → more volatile; part asset, part adrenaline.
• Real estate: Volume collapses; prices adjust slowly but painfully.
• Cash: King in panic, pauper in recovery.
“Nothing is fully uncorrelated — but the shocks play out differently across assets,” says Mehta.
(Manik Kumar Malakar is a freelance writer. He writes on stock market, bonds and personal finance.)
Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.
