That phase is now behind us. Post November 2025, the character of the correction has changed. What started as a grind has turned more disorderly. As we move into February, the market increasingly smells and sounds like a bear market, especially if one digs deeper into the broader market spectrum.
Historically, across cycles, one of the most reliable ways to identify a bear market is not through index levels, but by looking at the breadth and extent of bruise in the broader space.
For example, one way to assess is to watch how stocks react to news flow.
In a healthy market:
- Good news is rewarded.
- Bad news is digested with dignity.
In a bear market:
- Good news is met with a yawn.
- Bad news is punished and often disproportionately.
That asymmetry is critical. Today, we are witnessing that eerie pattern.
Strong earnings, improved guidance, or corporate developments are being met with indifference. On the other hand, even mildly negative developments are triggering sharp drawdowns. This is what a bear phase looks like, not necessarily a dramatic crash in headline indices, but a steady erosion in breadth, sentiment, and risk appetite.
It looks more like a grind for indices, but the broader space, especially the small and mid-cap spectrum tells a different story. At the benchmark index level (BSE Sensex), the chart doesn’t show much pain. It is down only 4% odd since last November end. Even at the
BSE small-cap index level, the fall is not as sharp as the portfolios reflect. It is down only by 6% odd. But at the individual stock level, the fall is ferocious with near 50% of the small and mid-cap universe down by over 50% from the highs they touched in September 2024. One of our internal studies revealed that in nearly 20% of our tracking universe of 1000 companies, the stock prices fell by 70 to 75% from their September 2024 highs. That is the extent of the carnage in the broader markets. As one study reveals, nearly 80% of the broader market is in a bear market if one goes by its technical definition.
Basically, the bears who have been hiding for a while have resurfaced. Now that they are tasting blood, they are unlikely to let go of their grip unless some extraordinary positive development puts them on the fence.
Lots of examples come to the mind where the price action has been disproportional on the downside of late. The sharp fall in UPL shares, which fell by as much as 18%+ following the announcement of a group restructuring on fears of high debt and Holdco discount etc. is a case in point. High debt was not new, except that the market is in a mood now to magnify potential risks. Same is the case with IDFC Bank. It lost over 14K Cr market cap for the potential loss value of 590Cr fraud. Markets are in less forgiving mood. Similarly, over 10% fall in Dishman following a mild downgrade by rating agency reflects the extent of bearishness in the broader market. One can go on.
This feels less like a visible crash and more like a stealth sell-off especially in the broader small and mid-cap space.
And historically, such phases are painful, but they are also when long-term opportunity quietly begins to build. At the same time, it may be unwise to expect an immediate recovery. It may linger for a while. The prudent thing to do in such a sell-off is to grab the opportunities when the valuation is attractive instead of trying to time the bottom. That approach will call for a stubborn stomach to digest temporary and notional losses. With such a negative undertone in the overall sentiment, the number of opportunities one can identify with attractive FCF and payout yields, yet possessing high growth potential, have witnessed a sharp surge. Exciting times for bottom-up stock pickers. It is time to put capital to work, not to time the bottom!
ArunaGiri N, Founder CEO & Fund Manager, TrustLine Holdings Pvt Ltd