Jolly Christmas! 85% chance of Santa rally in Nifty, shows 2-decade history

NEW DELHI: Notwithstanding the recent stress in equity markets over fears related to recession and rising Covid cases, Santy Rally may make investors richer towards the end of December if history is a clue. Market data of the last two decades shows that Nifty not only has an 80% chance of closing higher in December but there is an 85% chance of investors being gifted with a Santa Rally as well.

Equity markets have a seasonal tendency to record a surge in stock prices during the last five trading days of December and the first 2 days of January. This phenomenon is known as the Santa Rally.



During this period of 7 trading sessions, Nifty has given 2% average return in the last 21 years since 2001-2002. There have been only 3 instances in 2013-14, 2015-16 and 2017-18 when the index spoiled the festive mood.

While the biggest drawdown has been not more than 1.2%, the highest upside has been that of 9% in 2003-04. 2021-22's Santa Rally saw Nifty advancing 4.7%, shows Ace Equity data.

December track record
While Nifty has plunged around 3% so far in December, historical trend indicates that the festive spirit may soon overpower bears. In the last 20 years, Nifty has ended on a positive note in December for 80% of the time. December has the highest average monthly returns of 3.2%, Samco Securities said.


In the last 10 years, Nifty 500 has given positive returns 80% of the time, with an average gain of 2%. With a success rate of 70%, Nifty Metal and Nifty IT have given average returns of 3.8% and 3.1%, respectively during the period.

Among metal stocks, Jindal Steel & Power has given an average gain of 7%, SAIL 10% and Vedanta 6% in the last 10 December months.

Among IT stocks, Persistent has rallied an average of 8%, Tech Mahindra 4% and Wipro 5% in the December month of the last 10 years, Samco said.

What should investors do?
Besides the hawkish stance by central banks globally and growing recessionary fear among investors, the rising cases of Covid in China is also fading hopes of a Santa Rally. Historically, the second half of December is seen as low-volume data as FIIs go on a holiday.

“The markets are likely to consolidate in the near term and there will be no trend line moves on either side because of lack of volumes in the market. The market may resume a rally post that, with the budget in the eye for the Indian markets,” said Kunal Shah of LKP Securities.

Analysts say it is a buy-on-dip market where the pace of buying could be less but a major dip is likely to be bought.

With the Nifty showing very strong support near the 18,000 level, Vaishali Parekh of Prabhudas Lilladher sees the possibility of a Santa rally in stocks from sectors like banks, financials, sugar and oil marketing companies over the coming weeks.

(With data inputs from Ritesh Presswala)

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)