October was obnoxious but November may be nice for Nifty bulls till Diwali, shows 10-year history

While Nifty has lost around 3% in October amid fears related to rising bond yields and the impact of the Israel war on FII flows, historical trends indicate that the uptrend would resume ahead of the Diwali festival.

While the seasonality aspect for the month hasn’t been very strong with the index giving negative returns in 5 out of the last 10 November months, the period from Navratri to Diwali Muhurat trading session has generally been positive for the markets.

“In the last 9 out of 10 years, Nifty has generated positive returns during this festive period with an average gain of 2.08%. This year markets have remained under pressure and slipped more than 3% since Navratri began. With only less than two weeks remaining for the Muhurat session, now we can expect markets to bounce back,” Apurva Sheth, Head of Market Perspectives & Research, SAMCO Securities, told ETMarkets.

Nifty is likely to find support around the recent low at 18,800 levels and is likely to head higher till this level holds, he said.

In the past, October has usually been the best month for Nifty while November does not have a clear trend. Since 2013, there have been equal instances of positive and negative returns during the festive month.

In recent years, November 2020 was the best for the index as it rallied over 11% due to rate cuts in the pandemic year. 2021 saw the index falling around 4% while last year it went up over 4% in November.

StoxBox’s Manish Chowdhury expects the market to consolidate and any meaningful upside from the current levels looks limited owing to varied economic, geopolitical and domestic factors.

“With a sombre mood of FIIs to invest in emerging markets due to rising US bond yields, we do not expect a major reversal in flows from them and should also keep DIIs at bay due to macroeconomic risks. Additionally, domestic investors look cautious amid the ongoing Israel-Hamas conflict which has the potential to sway market sentiment in the event of any further escalation,” he said.

Moreover, the relatively subdued earnings season has also failed to instill market confidence, with upcoming state elections also posing a risk for increased volatility.

Dalal Street's veteran fund manager Prashant Jain says while India is poised to outpace its growth from previous decades, the only concern is the trajectory of US yields.

"While the recent increase from 1% to 5% hasn't yet significantly impacted India, a further rise, especially beyond 5.5-6%, could influence Indian yields. This might result in additional Foreign Institutional Investor (FII) selling, potentially causing corrections in the markets. However, from a structural standpoint, buying the dips seems prudent, and large caps appear reasonably valued, offering compelling opportunities for compounding," he said at Morningstar Investment Conference.

In the October derivative series’ FII index future-based long short ratio fell to 10.87%, the lowest since March 29, 2023. “This date is clearly indicating bearishness but it does not mean we should build aggressive short positions in the index at current levels. In March 2023, FII were just 9% long but Nifty rallied 834 points. In September 2022, FIIs were just 13% long but Nifty rallied 900 points. In June 2022, FII longs were at 15% but Nifty rallied 1150 points,” said Sudeep Shah of SBI Securities.

(Data inputs: 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)