What is Bull Market?

‘The market is bullish’, ‘The market is bearish’ are the terms you constantly hear whenever there is a report or news about the Indian stock market. The stock market works on two principles: either the share price of a specific stock will rise or fall. It depends on the investors’ cost price of the stock that determines if they will make a profit or incur losses. For example, if you have bought a stock at Rs 300 and the current market price is hovering at Rs 350, 355, 367, etc., it is expected that this trend will follow, and the stock price will climb to new highs shortly.

The same direction that is making you profits above can be negative where the stock prices keep falling without knowing where they will stop. These directions are called trends and are fundamental factors in the functioning of the stock market. These trends allow investors to predict where the prices will go and ensure they make informed decisions and mitigate their losses.

Among the market trends, a bull market is loved by almost every investor as it allows them to make massive profits after they have experienced a bear market. This article details everything about the Bull market.

What is a Bull Market?

A Bull market is defined as a situation when the prices of stocks rapidly rise every day and continue to do so for a prolonged time. At a time like Bull, the prices of stocks may rally and increase in value by over 20% or more. A bull market is generally associated with the stock market indexes such as NIFTY, SENSEX, etc. Investors see how much they have climbed every day to understand the factors of a Bull market. If such indexes keep rising every day, the stock prices associated with them also rise, making it a bull market if the prices sustain at higher levels for a long time.

Since the rise and fall in the prices of the stocks are common in the stock market, a bull market is not constituted if the prices rise for some days and fall sharply on the next without rising again. For the stock market to enter a bull market, the market needs to witness an increase in stock prices for an extended period.

How does a Bull market work?

The stock market reflects the prevalent demand and supply and the performance of the country’s economy. If the country is seeing positive factors such as economic growth, high level of employment, good GDP growth, high productivity, or recovery from a negative event, the market may enter a bull run. At such a time, investors feel positive about the country’s growth, and their mindset is to invest in stocks and make profits based on the increasing prices.

Once the investors start showing interest in buying a large number of stocks, they can push the bull market even further. It also interests various private companies that are looking to go public. As investor sentiment is high, a bull market sees a high number of companies launching their IPOs to raise funds. In a bull market, it may be that a company that is not fundamentally strong can be oversubscribed multiple times just because investors are looking to invest in stocks.

A bull market in stocks can last for several weeks, months, or even years. It depends on the triggering factor which is pushing the positive performance of the economy. For example, a bull market can occur if the country’s GDP is expected to rise by a huge margin in the coming year or the manufacturing sector is seeing unprecedented productivity. In such a case, as long as the positive factor does not turn negative, the bull market in stocks may continue to rise.

Characteristics of a Bull market

There is so much more to a bull market than just the stock prices climbing to new highs every day. The concept of the bull market is complex and includes various features that are important for investors to identify a bull market and execute orders based on the current market trend. Here are the characteristics of a bull market:

• Market Rally: In a bull market, the stock prices witness a bull rally. This is when the share prices of the stocks increase by a huge margin and keep rising until the bull market is in place.
• Volatility: Volatility is yet another characteristic of a bull market as prices may decline for some days and then rise again. For example, a stock can rise by 100 points on a day, fall by 30 points on the next day, and rise by 70 points again.
• High Investor Sentiment: The investor sentiment during a bull market is high. High investor sentiment pushes investors towards buying more shares as the economic outlook is positive, and they believe the prices may rise higher. Such a market sees high stock prices that witness a steady increase in their value.
• Positive Outlook: During a bull market, there is a positive outlook toward the country’s economic growth. For example, if the Indian economy is performing well and is expected to improve, it is reflected in the stock market, and results in a bull market

Benefits of a Bull market

Here are the benefits if the stock market enters a bull run:

• A bull market yields huge profits as they can sell their stocks bought in a bear market and realize profits based on the price difference.
• With high investments from investors and increased demand, the employment rate rises along with improving economic growth.
• A bull market provides a great opportunity for investors to make short-term profits or successfully execute intraday trading. As the prices keep on rising, both types of investors can make considerable profits.
• It allows for previously undervalued sectors to recover and contribute to the growth of the economy and provide investors with profits.

The bull market in stocks is synonymous with price appreciation and wealth creation for the investors who see their investment rise by a massive margin. However, even within bull markets, there are temporary bull markets, and there are structural bull markets that may demand an adjustment to your portfolio. Hence, it is always wise to seek guidance from experienced financial advisors such as IIFL.

Now that you know what a bull market means and the definition of the bull market, you can go ahead and open a free Demat and trading account with IIFL to buy stocks during a bull market. You can visit IIFL’s website or download IIFL’s share market app from the app store for opening the accounts.