A few days ago, a young millennial asked me: “Are we in a bear market?”

“Why do you think so?” I asked.

“I don’t know. It just feels like one.”

This made me think: When does a stock market enter a bear market? How do we know? Is it a bear market because it feels like one? Or is there a slightly better way of looking at it? 

Investor.gov, a website run by the US Securities and Exchange Commission, says a bear market “occurs when a broad market index falls by 20% or more over at least a two-month period”.

Now, many people may not agree with this very specific definition, but just humour me for a moment.

How much do you think the BSE Sensex – India’s most popular stock market index – has fallen since reaching its all-time high closing level on September 26, 2024? By over 15% in close to twenty-four-and-a-half months. Clearly, as per the US Securities and Exchange Commission, India’s stock market is not in a bear market.

But again this seems like a rather rudimentary way of coming to a very specific conclusion.

So, let’s look at the following table. It plots the largest falls from all-time high closing levels of the Sensex. The BSE Sensex has data starting from April 3, 1979. It’s the only Indian index which has data spread over five decades.  

What does the above table tell us?

The latest all-time closing high of the Sensex was reached on September 26, 2024. By October 1, 2026, the trough of this fall till date, the Sensex had fallen over 16%.

This fall is number 17 on the list of the top 20 Sensex falls. But more interestingly, up until October 1, 2026, this fall had been on for 735 days. It has now crossed 740 days. This is the second longest fall on the list of the top 20 Sensex falls.

The longest fall of 814 days was between September 12, 1994 and December 4, 1996. But in this case, the Sensex fell close to 41%.

When we consider these factors, the only conclusion we can draw is that the current fall has been rather long and relatively shallow. You can call it a sideways market. A market that’s not going anywhere. And so on.

But this is not a bear market.

Also, it’s worth remembering that the BSE Sensex stocks form around 31% of the overall market capitalisation of stocks. Given that looking at the broader Nifty 500 Total Returns Index makes more sense. It’s a much better representation of the overall Indian stock market.

This index represents more than 92% of the free-float market capitalisation of the stocks listed on the National Stock Exchange. It also takes dividends given by companies into account. In comparison, the Sensex is just a price index.

Let’s look at the following table which plots the top 20 biggest falls from all-time high closing levels of the NSE 500 Total Returns Index. 

Like the BSE Sensex, the NSE 500 Total Returns Index reached its last all-time closing high on September 24, 2024. The lowest level from that high was reached on February 28, 2025, a fall of close to 19% from the peak.

As of October 6, 2026, this index was around 7.6% lower than the all-time high of September 26, 2024.

So, what does this tell us?

First, this is not a bear market. The broader market is down around 7-8% from the all-time high level.

Second, the large-cap stocks have fallen more than midcaps and smallcaps. In fact, as DSP Mutual Fund put it in a recent note: “The SmallCap/Sensex and MidCap/Sensex ratios are roughly 72% and 56% above their historical medians, both around three standard deviations above their long-term means.”

Third, a lot of money flowing into mutual funds of late has gone into schemes that primarily invest in smallcaps and midcaps.

This is, as usual, a case of retail investors following the reverse law of demand, where many investors buy stocks and equity mutual funds only after prices have gone up quite a bit. Or as DSP Mutual Fund points out: “Over the last year alone, small and midcaps have outperformed the Sensex by 21.5% and 14.1%.”

Of course, the fact that the overall market has fallen 7-8% since its last peak, and not more, is also because of all the money coming into the stock market through the SIP route. This has ensured that despite the relentless selling by foreign institutional investors, stock prices, on the whole, haven’t fallen much.

The point is that as long as SIP flows in particular, and retail flows in general, remain strong, stock prices may continue to stagnate. (Unless the foreign institutional investors start buying again with a zeal.)

In that sense, as long as SIP inflows remain strong, we may not have the kind of bear markets seen in the past. Instead, as those in the business of managing other people’s money (OPM) like to put it, we may have a “time correction”.

Which means those who have bought stocks at their peak prices, will take significantly longer to earn a decent rate of return on their investment. On average, this is the most obvious conclusion that can be drawn as of now.

Fourth, for smallcaps and midcaps to continue outperforming the large-cap stocks, they need to deliver very high earnings growth. Indeed, the earlier peaks in smallcaps and midcaps in 2007, 2010 and 2017 were followed by sharp “mean reversion”. In simple English, this means that after going up a lot, they eventually came back down.

Fifth, and perhaps the most important point of this piece: if it’s not a bear market, why does it feel like one to so many people? The answer lies largely in the availability bias.

Many retail investors have entered the stock market only after the pandemic. And in that period they saw stock prices go from strength to strength. So, they are limited by their lack of experience, with their experience of the stock market being largely an experience of rising prices.

And this lack of experience has fed into the availability bias. In their heads, they can only recall instances of the stock prices going up at a fast pace. They haven’t lived through an era of crashing stock prices.

In fact, the two biggest crashes, the dotcom crash of 2000 and 2001, and the 2008 crash, happened a while back. Even those who lived through those crashes, perhaps have very little memory of it. With time, even market crashes can start to feel like distant history. As far as the 2020 crash is concerned, it got over as soon as it started.

Indeed, I have extremely vivid memories of January 22, 2008, when the Sensex fell more than 10% intraday and trading had to be shut down for an hour. And given that, if this is a bear market, I am Amitabh Bachchan.