Analysing Sensex returns for the last 11 years

In view of the current domestic economic scenario coupled with uncertain global influences, many analysts have expressed their views about how the markets will react in 2012. We, at DSIJ, thought of turning back into history to see how the markets usually move every year.

We analysed the monthly returns of the Sensex for the last 11 years. As a result of this exercise, we found out some interesting facts from the historical market data. We found that the markets are usually nervous during the first 4 months of the year, eroding investors' wealth. Further, we also found that January (the current month) is usually the worst performing month for the markets, while December (the month which has just elapsed) ends up being the best month. Even though this is not a thumb rule, it is a trend that is good to know when investing.

May 2009 was one of the best months in terms of returns for investors. The Sensex gained 28.26% versus the previous month of Apr 2009, giving a thumbs up to the UPA victory. On May 18, 2009, the markets cheered the comprehensive victory of the Congress in the general election, opening for a few seconds – the day was remembered as 'Golden Monday'. The broader market had 2 upper circuits, which helped them to close up by 20% for the day.

On the other hand, Oct 2008, was the worst month for the market in the past 11 years, when the markets plunged 24% on the back of gloomy global news. This was after the US sub-prime crisis and the Lehman Brothers collapse, which gave the impression that the US is in a deep recession and there is going to be more pain ahead. It was first time (Oct 24, 2011) that Sensex had touched 8700 levels from the peak levels of 20k plus. Another major 18% fall happened in Jun 2008, when the crude oil prices surged to around US$ 140 a barrel on the New York Mercantile Exchange (NYMEX).

As per the assumptions made by technical analysis, history repeats itself. Whether this turns out to be true remains to be seen. We believe that 2012 is going to be a challenging year ahead. However, if one looks at the month of March in the last 3 years (post recession), it has consistently yielded good returns for investors. We believe that with the govt. bringing cheer with its annual budget, the markets tend to react positively. The coming budget also faces challenges like controlling the fiscal deficit, major policy reforms, the implementation of the Direct Tax Code (DTC) and Goods and Services Tax (GST) etc. It will be a good to watch the govt’s moves that will drive the markets sentiments.