Looking at the current fall from the lens of historical drawdown

Shashikant Singh
/ Categories: Knowledge, Fundamental
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% 

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.  

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