Will it be a December to remember for Nifty bulls? Let’s go back to history

As we enter the last month of 2022, the key market indices hit record highs setting in a festive mood. While we all wait for Santa to climb down the chimney to give us gifts, we are not the only ones Santa visits. He is said to take a trip to Dalal Street making bulls push up the stock prices.

This is the Santa Claus rally. This phase is a seasonal phenomenon, which exhibits a stock market surge through the last five trading days of December and at times extends for the first two trading sessions of the New Year.

Empirical data shows that December is the month which delivers the highest returns when compared to the other months of the year. The graph below displays the average monthly return outcome over the past 20 years. December, compared to other months, has the highest probability of 80% to close in green. It has clocked an average of 3.2% return during the month, the highest throughout the year.

One of the popular reasons for such a phenomenon is Foreign Institutional Investors (FIIs) tending to withdraw before the end of their financial year. Lower volumes are an effect of a retreat by FII from the markets in the latter half of the month. This makes it simpler for Domestic Institutional Investors (DIIs) to support their net asset values (NAVs) for fiscal year-end closing.

The reason for such a rally is influenced by the situation that year. This year, one of the reasons that we can say is that the inflation is cooling off. This has led to the anticipation of less aggressive rate hikes by the central banks. No matter what the reason for an up move each year, the fact remains that markets tend to rise in December.

Let me highlight that seasonality is not the only aspect you must consider while making your investing decisions. It is a common psychology for investors to jump on the riding sledge to gain profits. What needs to be kept in mind is to not get into any kind of FOMO as the sleigh can skid. Club it with your own technical or fundamental parameters and purchase at the right valuations.

Technical Outlook
NIFTY started the week on a positive note and registered its lifetime high levels and followed the suit for four straight days and finally claimed a lifetime high of 18,887.60 levels on December 1. The buying momentum, however, got fizzled out on Friday’s session, which pulled the index below 18,800 levels.
Despite the recent rally, up-trend in the broader time frame is still very impressive but the minor throwback at the present level cannot be ruled out. On the daily chart, the index has formed a Bearish Crab Harmonic pattern so will not be a surprise if profit booking arises.
The bulls need to surpass 18,900 levels to gain bullish momentum as the options seller are active near 19,000 levels with an increased OI. The support for the Index is placed near 18,500 and any move below the same will extend the fall to 18,380 levels.

The celebrative mood at Dalal Street should continue with stock-specific action likely to command investors’ attention, especially in IT, Metal & Cement stocks.

Expectations for the week

The upcoming week is going to be a host of important events. To begin with, we have a balance of trade data of two major economies, the US and China. China will also report its MoM and YoY inflation rates. Investors worldwide will keep a close eye on these events as they would determine the path global indices would choose to follow.

Back home, the attention would be drawn to the RBI interest rate decision. After three consecutive 50 bps rate hikes, the CPI inched below 7% in October. Therefore, the Street expects a 35 bps rate hike instead of half a percent. The MPC’s projection and discussion about inflation and the growth of the economy will be the key monitorable.