Why all bull runs are alike; each market crash is different in its own way

Recently someone asked me: How is the recent stock market crash similar to the crash of 2008? It was an interesting question. It reminded me of the starting line from the Russian writer Leo Tolstoy’s book Anna Karenina: “All happy families are alike; each unhappy family is unhappy in its own way.”

With due apologies to Tolstoy, in the context of the stock market this can be rephrased as: “All bull runs are alike; each market crash is different in its own way.”

Let’s try and understand this by comparing the crash of 2008 with the recent crash

Let’s start with 2008.

The stock market peaked in early January. The Nifty 500 total returns index (TRI), a good representation of the overall Indian stock market, reached its then all-time high on January 4. A total returns index takes the dividends given by companies into account while calculating returns.

By October 27, 2008, less than 10 months later, it was down 64%, implying that an investment worth ₹100 on January 4, 2008, was down to ₹36 by October 27, 2008. The fall was massive.

Now, let’s talk about the recent crash.

The stock market peaked in late September, with the Nifty 500 TRI reaching an all-time high on September 26, 2024. It has fallen by a little over 16% since then, implying that an investment worth ₹100 as of September 26, 2024, was worth ₹84 as of March 7, 2025. So, on the broader level, the fall this time around is much lesser than in 2008.

Of course, the time period between late September and now is around five and a half months. The time period between early January 2008 and late October 2008 was less than ten months.

Now, let’s look at valuations.

The price to earnings ratio of the Nifty 500 index as of January 4, 2008, was around 27x. This means that for every rupee of earnings of the stocks that made up for the Nifty 500 index, the investors were ready to pay ₹27 as a market price. In comparison, on September 26, 2024, the recent peak, the price to earnings ratio of the Nifty 500 index was 28x, slightly higher than it was at the 2008 peak.

When it comes to the price to book value, another measure of valuation, things are slightly different. On January 4, 2008, the price to book of the Nifty 500 index was at 6.3x. On September 26, 2024, it was at 4.2x. In price to book value terms the 2007-2008 stock market rally was a bigger bubble in comparison to the rally which peaked in late September 2024.

By October 27, 2008, the price to earnings ratio and the price to book ratio of the Nifty 500 index had collapsed to 9.3x and 1.8x, respectively. So, the stocks were really attractively priced with the price to earnings ratio being in single digits. As of March 7, 2025, the price to earnings ratio of the NSE 500 stocks was 22.5x and the price to book was 3.5x.

While these valuations are lower than they were in September 2024, the stocks are nowhere as attractively priced as they were in October 2008, simply because that crash was massive. In fact, in comparison to 2008, it’s not even fair to call the current crash a crash; it’s more of a fall.

So, why are the 2008 crash and the current fall, different, at least up until now?

From January to October 2008, the foreign institutional investors (FIIs) had net sold Indian stocks worth ₹52,137 crore. In comparison the net inflow into equity mutual funds during the period was just ₹5,856 crore. The money these funds would have spent in buying stocks would have been lower than ₹5,856 crore.

This, at a basic level, explains the gravity of the crash. Also, the number of unique registered investors was nowhere like it is today. Data from the National Stock Exchange (NSE) suggests that the number of unique registered investors was around one crore in 2008.

Why are things different this time around?

From October 2024 to March 7, 2025, the FIIs have net sold Indian stocks worth ₹2.38 lakh crore. Now, the data for equity mutual funds is available only up to January 2025. So, we will have to work with that. From October 2024 to January 2025, the FIIs have net sold stocks worth ₹1.78 lakh crore. During the same period the net inflows into equity mutual funds stood at ₹1.59 lakh crore.

A significant portion of that would have been used to buy Indian stocks. Further, the unique registered investors as per the NSE crossed 11 crore as of January 20, 2025. So, there are many more retail buyers in 2025 than there were in 2008, and that has slowed down the fall.

What does all this mean for the retail investor?

First, the 2008 crash came on the back of a global financial crisis. While Donald Trump continues to give the world at large slow heart attacks, the global financial system isn’t facing a major heart attack in 2025 like it did in 2008. So, that’s the first thing to keep in mind.

Second, as far as overvaluations go, Indian stocks, on the whole, are still overvalued. The price to book ratio of 3.5x tells us that clearly. That wasn’t the case in October 2008. In fact, the average price to book ratio – both mean and median – for the NSE 500 index over the last three decades is around 3.0x.

Many retail investors now invest in stocks through the systematic investment plan (SIP) route. The SIPs are now a social phenomenon, something they were not in 2008. The most important reason behind investing in stocks through the SIP route is that it brings cost averaging into the picture, which basically means that when stock prices fall SIP investors continue to buy stocks and in the process bring down the cost of their purchase.

So, when the market rallies after the fall, the gains are bigger. But a 16% fall barely brings cost averaging into the picture. Of course, a slower fall also ensures that wealth destruction happens at a slower pace, which keeps retail investors more interested in stocks.

In summary

Retail investors need to ensure that their families don’t end up being unhappy families because of their investment decisions. To ensure that they need to keep diversifying their investment across different asset classes, stocks, mutual funds, fixed deposits, gold, etc.

They also need to ensure that even within the same asset class they don’t bet big on just a few stocks or one or two mutual fund schemes or hold fixed deposits in just one bank.