Why GQuant's Shankar Sharma Thinks 'Mother of All Bear Markets' is Dead

The BSE Sensex tanked around 1,600 points from the day’s high, while the NSE Nifty50 appeared set to approach the sub-25,000 level amid intense selling on Friday. The decline was fueled by concerns that Israel was preparing for a major retaliation following Iran’s missile attacks, widening the scope of the Middle East war.

Shankar Sharma, founder of GQuant and First Global, said the “mother of all bear markets is dead”, as he talked about the 100 years of global markets, attending Outlook Money’s 40 after 40 Retirement Expo 2024.

Sharma recalled the ‘Black Tuesday’ crash of 1929, also known as the Great Crash or Crash of ’29, a major American stock market crash. The markets started witnessing a sharp decline in September 1929 on the New York Stock Exchange (NYSE) and ended in mid-November of 1929. “This is what we remember most in the long-term history of the historical events of the markets,” he says, according to Outlook Money report.

The veteran investor explained the US market event by saying, “Global stock markets are Baby”. “In the context of world history, it is just around 100 years old. And just like babies, they have had their fair share of tantrums (i.e., bear markets),” he added.

In addition, Shankar outlined five key reasons behind the bear markets which are excessive speculation or bubbles, wars, inflation and tightening monetary policy, excessive leverage, and the pandemic.

What are the five main factors behind the bear markets?

Excessive Speculation: In the past, bear markets have often come after periods of too much speculation, which resulted in market bubbles. This was clearly visible in the crashes of 1929 and the dot-com bubble of 2000.

Geopolitical Tensions: Wars and geopolitical conflicts can also trigger bear markets. For example, the recent Russia-Ukraine war and the Yom Kippur War of 1973 led to an oil embargo, which prompted a bear market.

High Inflation and Monetary Tightening: Surging inflation often results in monetary tightening by the central banks which often causes bear markets. The fast increase in key interest rates can significantly impact the stock markets.

Excessive Leverage: High levels of borrowing in financial institutions can result in instability. For instance, during the 2007-2008 financial crisis, banks' excessive leverage played a significant role in the market decline.

Pandemics: According to Sharma, global crises like the COVID-19 pandemic can cause sudden and severe market declines. In early 2020, global equity markets fell sharply due to pandemic-induced shutdowns.

However, Sharma also mentioned that humans are quick learners and the world has devised a solution for each ‘Problem Cause’ individually. “With each experience, we get better at dealing with complex problems,” he said.

According to Sharma, the world is becoming wiser in dealing with overvalued markets, leading to more reasonable valuations globally over time.

To prevent a 2007-08 type of crisis, regulators globally have now imposed strict Capital norms on banks and large brokerage houses.

The veteran investor added that the world has become more comfortable with the notion of war as despite the two wars co-occurring, markets worldwide have been very resilient.

Considering the scale of the Middle Eastern crisis earlier, we would have seen oil at 150. However, now we understand that most crises are short-lived and the market reactions are far less panicky.

He added that we have learned how to deal with challenges posed by bear markets, noting that the top five reasons for such downturns are consistently overcome.

“Speculation, inflation, war, disease - we have dealt with them all! In short, we can deal with Pran, Prem Chopra, Gulshan Grover, Dr. No, etc. The hero (the bull market) always triumphs in the end,” he said unless an entirely new villain emerges to surprise the world.