Bulls and Bears on Dalal Street

If you read the news, you would have come across seemingly cryptic headlines such as “Bulls overpower Bears on Dalal Street”, “Bears rampage the markets”, “Jhunjhunwala bullish on Titan”. If you do not fully comprehend these or wonder why only these two specific animals get mentioned, read on.

Where is Dalal Street?

“Dalal” means a “broker” in the Hindi language. In the 1850s, the early days of stock trading, brokers used to gather in-person to trade. They needed a place for these meetings, for which they chose the shades of large trees near the Town Hall in Mumbai. This is how Asia’s oldest stock exchange, the Bombay Stock Exchange (BSE), came into being.

Due to the growing size of the broker community, the meeting site was shifted several times in the next few decades. In 1930, BSE moved into a proper building and the road in front of the building came to be known as Dalal Street. Over time, the locality of the largest and most famous stock exchange of the country became synonymous with the centre of stock market action in India.

Dalal Street is now a major financial hub, housing offices of several major banks and financial companies. In the world of stock markets, though, it has lost its iconic importance due to two factors:

• The bulk of the trading of shares now happens electronically. With brokers no longer meeting in person every day, no place can lay a claim to be the hub of action
• National Stock Exchange (NSE), and not BSE, is now the largest exchange in India. NSE, having its roots in electronic trading, did not need a presence on Dalal Street

Despite the sea change, Dalal Street is used to talk about Indian stock markets even today. It is the desi counterpart of the famous Wall Street in New York, US, which has similar origins.

Bulls and Bears

Merriam Webster’s dictionary defines a “Bull” in the context of stock markets as “one who operates in expectation of a rise in the price of stocks, or in order to effect such a rise”. That is a mouthful. Simply put, bulls expect the stocks to go up; their antipodes, the bears, expect the opposite. For each trade or transaction, the buyer acts like a bull while the seller acts like a bear.

Simply put, bulls expect the stocks to go up; their antipodes, the bears, expect the opposite.

Bulls and bears fight every second the markets are open for trading. The outcome of this wrestle determines whether the price moves up or down. If there are more bulls, or people interested in buying, the prices are bid up. If there are more bears, the prices get pushed down.

The tale of how these two animals came to represent the two opposing views in the markets is hundreds of years old and is subject to much debate. It is also not too relevant today — more important is to remember which animal refers to which side. The following analogy can help us memorize:

Bulls tend to throw their enemies up in the air using their strong horns. Bears, on the other hand, use their paws and enormous weight to crush down the enemy.

Related Sentiments

Bulls and bears even have sentiments named after them: “bullish” and “bearish”. Being bullish refers to acting or having opinions like a market bull.

For instance, if you believe that soon all cars will be 100% electric, you may be optimistic about the Tesla stock. You are thus being bullish on Tesla, or are a Tesla Bull. You may also believe that Maruti Suzuki will not succeed in the transition to electric and smart software. Its cars would stop selling, and its market share and stock price would decline. You would thus be bearish on Maruti Suzuki.

Note that one can be bullish and bearish at the same time albeit about different stocks, as this example illustrates. In the context of a single stock, being bullish or bearish is a point-in-time opinion. As one’s expectations about the future evolve, their view on the markets or a particular stock may also change: no one stays always a bull or always a bear ¹.

Bull and Bear Markets

The terms Bull Market and Bear Market are used to describe the general direction of price movement. As you can guess by now, an increasing market is referred to as a bull market, while one which is down in the dumps is called a Bear market. Though commonly mentioned in the context of stock markets, these terms apply equally well to other markets such as real estate, bonds or commodities such as gold and oil etc.

Not all declines are called bear markets, though. Strictly speaking, a decline of 20% from the recent highs is considered as the threshold number. Declines of more than 10% but less than 20% are, in market terminology, called corrections. Corrections are much more common than full-fledged bear markets.

The last two Bull markets that the Indian stock markets witnessed occurred from 2001 to 2007 and then from 2009 to 2020. The most recent bull market that started in April 2020 is still going on. The Great Financial Crisis (GFC) of 2007 terminated the ongoing bull market and triggered a bear market that went on till March 2009. The subsequent bull market carried on for more than a decade, till 2020. It then took a global pandemic to shake the faith of the bulls. The ensuing bear market of 2020, though lasted only about a month, i.e. March 2020, was the most ferocious one the world has ever seen. Global stock indexes, including India’s Sensex and Nifty 50, plummeted more than 10% in a single day. Several stocks saw their valuations chopped by 30-40% in a matter of hours. This repeated several times during the course of that month and by the time the dust settled, many stocks had lost 80-90% of their value.

The Cycle

As you might have observed from these examples, like most things in life, neither bull nor bear markets last forever. The optimism, greed and inevitable complacency of the bulls lead to sky-high stock prices. Such lofty prices fail to attract new bulls to the market and even cause the existing ones to turn sceptical. They also attract the bears, who come rushing smelling a lucrative opportunity.

A small decline in prices scares the not-so-strong bulls, who try to exit the market by selling their holdings. No new bulls come to replace the weak ones and those who choose to stay get butchered by the onslaught of bears. Slowly, the price decline starts feeding itself, leading to a total collapse and an end to the era of the bulls.

From the ashes of a bull market starts a bear market, which takes a life of its own. The opposite happens when a bear market continues for too long or if the price declines become too severe. And so goes on the never-ending cycle between these two.

As these recent occurrences show, bear markets, however, typically do not last as long as bull markets. Though that does not mean that it is easy to navigate them. The gruesome price moves scare even the strongest hearted and amid a bear market, it is incredibly hard to believe that the bloodshed of the bulls by the bears is ever going to end.

I hope you now know which bulls and bears roam on the Dalal Street and are better equipped to understand the headlines related to events that occur in the stock markets.