How to Identify a Bull Market ...

Often Investors get perplexed, when it comes to understanding weather we are in a bull run or on a bear market. Though this has to be read indirectly, investors are often misled by variety of forces in the markets.

Above all they buy stocks which have already rallied and then wait for years together calling them as long term investments. Infact specific sectors outperform in specific patches of a market cycle. It is better to buy a sector ahead of a rally and exit it at a suitable time by following the cycle.

We attempt to demystify this process with the attached presentation.

Often markets discount economic fundamentals in advance and

market cycle typically precede economic cycle. (See chart)

For instance, at the moment the economic scenario has not improved locally or globally, but still markets have rallied from 9000 to 12000 (30% rally). The reason could be : adequate liquity + return of the risk appetite + the reason we gave above : Market cycle preceeds economic cycle.

Now let us try to understand the method of identifying a Bull market or a bear market.

In a Early Bull Run the sectors that lead the rally are:

• Financial / Banking
• Transportation / Automobile
• Consumer Durables

In a Mid Bull Run, the sectors that lead the rally are :

• Technology
• Capital Goods

In a Late Bull market :

• Basic Industries
• Energy
• Precious Metals

In a Bear market, following sectors outperform the market :

• Health Care
• FMCG
• Utilities

Attached chart ( one below the other) clearly describes the logic behind the sectoral outperformance. We hope investors use these indicators and benefit.

Note: We thank Birla Sunlife Mutual Fund for providing these information.