What is a bull market? How can investors benefit from it? | Explained

What is a bull market in stock market: The term "bull market" can be applied to anything that is traded, such as bonds, currencies, and commodities; however, it is most often used to refer to the stock market.

A bull market is a financial market condition where prices of securities are on a continued upward trajectory. Image: Freepik/ Representational image

What is a bull market in stock market: A bull market is a financial market condition where prices of securities are on a continued upward trajectory. The term "bull market" can be applied to anything that is traded, such as bonds, currencies, and commodities; however, it is most often used to refer to the stock market. Since prices of securities rise and fall continuously during trading, the term "bull market" is notably reserved for extended periods where a large portion of security prices rise.

Typically, bull markets are characterised by investors' optimism, confidence, and expectations that strong results will continue for an extended period of time. One has to note that psychological effects and speculation may sometimes play a role in the markets and that bull markets are difficult to predict.

Bull markets generally take place when the economy is strengthening or is already strong. But how do investors benefit from a bull market?

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Calling the bull market a great opportunity for investors to create sustainable wealth, Chokkalingam G., Founder, Equinomics Research & Advisory Pvt., said, "No one can judge what the peak is for the equity market as a whole or for any individual stocks. One should always go by individual stock valuations and start booking profits in overvalued stocks. This is essential because history proves that an upturn in a bull market has never been a linear upturn. Periodic corrections in the whole market and also in individual stocks are the reality most of the time."

Recommending using bull markets to make corrections in stock selections, he added, "It is very difficult for any investor to be right in stock selections all the time. If any mistake is made in terms of governance issues, business models, or valuations, then investors should use the opportunity to exit such stocks."

Furthermore, the expert added, "In Indian markets, it is true that large cap and small cap segments do not move all the time together. Many times, the small and mid-cap segments severely underperform the large caps. Once in a while, the large-cap segment also underperforms the small and mid-cap segments. Consequently, investors should use a bull market to shift the focus from one segment to another based on both segments relative valuations and also relative outperformance."

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