This is at best a pullback, not a reversal of the bearish market trend

Even in India, history tells us that we have not had bull markets longer than 4 years or 5 years at the most Shankar Sharma Veteran Investor

- Ram Sahgal

The 15% recovery in the markets from 10-month lows of 21,743.65 on 7 April through the 25,000 levels now is at best a pullback rally, and not a reversal of the bearish trend that commenced in October last year, says veteran investor Shankar Sharma, citing slowing earnings growth.

Sharma expects the market returns to remain unimpressive after five years of a bull run due to a slowdown in government capex and single-digit nominal economic growth, which translates into muted earnings growth. What determines market direction in the ultimate reckoning are earnings, not flows alone, says Sharma, referring to foreign portfolio investors turning buyers after six-and-a-half months of sustained selling in the secondary markets. Edited excerpts:

You have said that markets tire after the fifth year of a bull run, but now flows seem to be improving again despite tepid results. Your take?

Contrary to what people are led to believe by the marketing hype around equities, the inescapable truth of markets is that they are cyclical by nature. There is nothing called a permanently uptrending bull market.

Even in India, history tells us that we have not had bull markets longer than 4 years or 5 years at the most. That is exactly where my 'Lake of Returns' theory comes in.

Returns from stock markets and, for that matter, any asset class are finite. Like the capacity of a lake, returns from the stock market are not like a permanently flowing river. Therefore, the lake levels can rise dramatically in a bull market, and then these supernormal returns cause a breaching of the safety levels of the lake and distance into a calamity of flooding. It is by this natural and repeatable process that the lake levels dry out to a level of abysmal returns.

The bull market that started in April 2020 had already entered its fifth year in 2025, and it is usually around this time that the bull starts to get extremely weak.