The S&P BSE Sensex closed on Monday at 17% below the high reached in March this year. After the carnage, the big question is: how far does the market have to fall to find a bottom?
One way of figuring out an answer is to find out what happened when the US Federal Reserve started its last tightening cycle. It was in June 2004, almost at the beginning of the huge global boom of 2003-07. In June 2004 the Fed raised its policy rate from 1% to 1.25%. The Sensex had started moving up from the middle of 2003 and between May 2003 and January 2004, it had climbed a massive 100%. It reached a high of 6,249 points in January 2004 before starting a long decline, partly because it had gone up too far too fast and partly on jitters about Fed tightening.
Now, there could be more pain in the market before it bounces back.