Tale of Two Bear Markets: Why The Current One Resembles 2018-2020
Sharp declines test nerves. Long ones test conviction. We are in the second kind.
Most investors we speak with are comparing the current microcap correction to 2022. We think that is a mistake. Not because the comparison is irrelevant, but because it leads people to the wrong conclusion about what is happening to their portfolios and what they should expect going forward.
The index level drawdown in 2022 was sharper. The Nifty Microcap 250 fell roughly 23% peak to trough. Today, the same index is down about 28% from its September 2024 peak. On depth alone, the two episodes look roughly comparable. If anything, the current cycle is only marginally worse. This time, besides the depth which is destroying portfolios, duration is adding a fuel to this fire.
There are two kinds of corrections. The first is a sharp fall followed by a fast recovery. It is painful but brief. Capital is locked up for a few months, nerves are tested, and then the market rewards those who held on (buy the dip). The second is a slow, grinding decline that stretches across quarters. The first kind tests your nerve. The second kind tests your conviction. And conviction, unlike nerve, has a shelf life. We believe the current correction in Indian microcaps belongs firmly in the second category. The data supports this clearly, and the implications for how investors should think about their portfolios are significant.
The shape of the two corrections
We went back and plotted the drawdown curves for both the Nifty Smallcap 250 and Nifty Microcap 250, indexed to their respective peaks. The chart tells a story that no single number can.
In 2022, the Microcap 250 peaked around January 10-14 and hit its trough of -23% by June 20. Five months. By September 8, it was back to its previous peak. Eight months, start to finish. The entire correction, including the recovery, fit inside three quarters.
The current cycle peaked around late September 2024. Eighteen months later, as of March 30, 2026, the Microcap 250 is at -28%. It is making fresh lows.
The Microcap 250 only has data from 2021, so to see how the current cycle compares to longer history, we turn to the Smallcap 250. The pattern holds, and the historical parallels become clearer.
The Smallcap 250 drawdown currently is at -23%, which is the similar to the level as seen in June 2022 from where it began its recovery.
A 23% fall that recovers in eight months (microcap) to 15 months (smallcap 250) and a 28% fall that is still deepening after eighteen months are not the same event. Duration is a key differentiator and this is why the correction in 2022 is fundamentally a different experience for anyone holding capital in this segment.
Why duration matters more than depth
There is a natural instinct to focus on depth. A 30% fall sounds worse than a 20% fall. But in practice, the damage from a sustained, longer and grinding downturn is far greater than from a sharp one, even if the sharp one goes deeper. Here is why.
Capital exhaustion: In 2022, if you had cash to deploy, you put it to work over three to four months and were rewarded within the year. In the current cycle, the averaging down capital ran out somewhere around month eight or nine, which was mid-2025. That was followed by another nine months (and counting) of decline. Many investors who thought they were buying the dip in Jan-March 2025 are now sitting on 15-20% losses on that “dry powder” capital itself (Just to be clear, yours truly doesn’t believe in taking a cash call).
Behavioural erosion: A sharp fall is a test of nerve. You either panic and sell, or you hold on and get rewarded relatively quickly. A prolonged grind is a test of conviction, and it is a test that most investors eventually fail. The problem is not that people sell at the bottom. The problem is that people sell after becoming exhausted and demoralised, not because anything changed in their companies but because the pain simply went on too long. Sharp falls filter out weak hands quickly. Prolonged falls slowly convert strong hands into weak ones.
The 2022 playbook trap. This is perhaps the most insidious effect of having a recent sharp-recovery cycle in memory. Investors who lived through 2022 learned a specific lesson: buy the dip aggressively, the recovery will be fast. That lesson was correct in 2022. It has been devastating in 2024-26. The muscle memory of a V-shaped recovery has led people to deploy capital too early, too aggressively, and without adequate respect for the possibility that this cycle might be structurally different.
What the index does not show
The numbers we quoted above are index level drawdowns. They dramatically understate the damage to actual portfolios. To understand what is actually happening beneath the indices, we looked at drawdowns by market cap bucket.
The indices do not even cover the universe where most of the pain is concentrated. The Nifty Microcap 250 covers companies ranked roughly 500 to 750 by market cap. The 750th largest listed company in India today has a market cap of around ₹4,000 crore. Below that are over 3,000 listed companies that do not appear in any index at all. That is the universe where we do our work and the picture there is far worse than anything the indices suggest.
We ran a market cap bucket analysis recently and shared some time back on our Substack (link). For companies below 5000Cr the median drawdown now sits at around 65% from peak.
This is the duration problem in its most concentrated form. It is not just that the headline indices understate the drawdown. It is that the segment most affected by duration, the least liquid, least covered, least institutionally owned part of the market, is completely invisible in the data that most investors track. The Nifty Microcap 250 says -28%. The median stock in the sub-₹3,000 crore universe says -65%. That gap is the distance between what the market commentary discusses and what actual microcap portfolios are experiencing.
The right parallel is not 2022
If the current cycle does not rhyme with 2022, what does it rhyme with?
We think the relevant comparison is 2018-2020. That correction began around January 2018, and the Nifty Smallcap 250 spent over 31 months below -20% from its peak. It was below -30% for 26 months. The trough, amplified by COVID, hit -61% in March 2020. The index did not recover its January 2018 peak until May 2021. Over three years.
That was a correction defined not by a single sharp event but by a relentless, grinding erosion of value. It started with LTCG tax and liquidity tightening, then IL&FS happened, then the NBFC crisis deepened, then COVID hit an already broken market. Each time it looked like the worst was over, something else arrived. The constant through all of it was duration.
We are not suggesting the current cycle will follow the 2018-20 template exactly. The starting conditions are different, corporate balance sheets are in far better shape, and there is no systemic credit event (yet). But the nature of the current drawdown so far feels closer to 2018 than to 2022.
What duration corrections create
The point of this note is not to be pessimistic. It is to try to understand what is happening so that we can respond appropriately.
Duration corrections do something that sharp V-shaped corrections do not. They compress valuations structurally. When the pain lasts six months, only the weakest hands capitulate. When it lasts eighteen months, even strong, informed, well-capitalised investors start to sell. PMS and AIF redemptions accelerate. Mutual fund inflows slow. Sell-side coverage shrinks. Management access events dry up. The entire ecosystem around small and microcap investing contracts.
This is precisely why the opportunities that emerge from duration corrections are bigger and better than those that come from sharp ones. By the time this cycle ends, the pool of remaining buyers will be small. The supply of sellers will be genuinely exhausted. Valuations in pockets of the market will reflect not just fair value but outright neglect.
For long-term, fundamentals-driven investors, this is the environment where the next three to five years of returns are being seeded. The catch is that you cannot harvest those returns without enduring the duration. There is no shortcut. The only advantage available is the clarity to know what kind of correction you are in, so that you do not mistake it for something it is not. We are in a duration correction. It is not 2022. Plan accordingly.
At Nine One Capital, we invest in micro and small caps through a defined framework that explicitly accounts for how liquidity, sentiment, and expectations drive valuations in this segment, not just fundamentals. If you would like to better understand our framework, you may write to us at gaurav.a@nineonecapital.in or fill in the form here (link).
Nice article.
Really enjoyed reading this one too.