Doing Well in December

The equity market saw a big jump in the month of November with frontline indices gaining more than 4 per cent. This is after we saw a fall in the equity indices in the month of October. I anticipate this momentum to persist, rooted in historical trends. Since 1979, in the month of December, the Sensex has delivered positive returns in 33 out of 45 instances, marking a robust 75 per cent success rate—the most favourable statistics for any of the other months in a year. June and July have come closest to these statistics that have shown positive returns in 30 instances out of 45. 

What also gives me more confidence on this seasonality impact is the higher-than-average returns in the month of December. On an average in the last month of the year, Sensex has generated a positive return of 2.8 per cent compared to 1.14 per cent of monthly returns observed by it since 1979. Hence, this month is likely to be better for the equity market. The wave of optimism stems from two key factors: the tendency for increased returns in December and the higher probability of positive returns during this month.

This trend can be intuitively explained by the influx of fresh cash received by institutional investors towards the year-end, directing these funds into the stock market. This infusion typically acts as a catalyst, elevating the stock prices. Additionally, given that December marks the year-end for many institutional investors, there’s a vested interest in avoiding underperforming stocks to safeguard their performance-based bonuses. As a result, I anticipate the market to maintain its buoyant nature in this month. 

There is even another unique reason why I believe this December will be good for equity investors. Next year we do have a general election and historically we have seen that the December month prior to any general election turns out to be favourable for the equity investors. Even in the year 2008, when we were at the midst of a global financial crisis (GFC), Sensex gave a return of 6.1 per cent in the month of December.

Considering these aspects, I strongly believe that now is an opportune time to stay invested in equity. Moreover, factors such as falling yields and the tapering of inflation are poised to contribute positively to the Indian equity market’s performance. Our cover story in this issue is therefore especially dedicated to the impact of Union general election on equity market returns. The period of the impact taken into consideration includes before, during and after the election. 

Besides, we also have a special feature on the IT sector in this issue. The story will help you to make sense of how global uncertainties, large layoffs and artificial intelligence are going to shape the future of Indian IT companies. It will also give you a glimpse of what to expect in terms of returns in the next few quarters from this sector. We are also carrying a special report on the importance of microfinance institutions (MFIs) in India. The story talks about how the MFIs are evolving and the important role they play towards the inclusive growth of Indians and at the same time the prosperity they bring to the shareholders too.

Considering the rising interest in the derivative segment among investors, we have prepared a special report on this segment. The story will help you to know the risks involved while trading in derivatives. As we approach the turn of the calendar year and move into 2024, let optimism be the key factor when investing in the financial markets. Of course the uncertainties created by such factors as the ongoing wars between Ukraine and Russia and Israel and Hamas will dangle the sword of Damocles above our head, yet, let not that dampen the investing spirit.

RAJESH V PADODE
Managing Director & Editor