Equity investors on the Indian bourses have had a fluctuating ride in the last decade or so. The turbulence in the domestic markets continues due to global cues and intrinsic issues. WTC Incident, Iraq War and Sub-prime crisis were the major global events which affected us. Currently the markets are also facing headwinds amidst the Eurozone crisis.
On the domestic front, we were in somber mood because of political logjam in 2004 elections, double taxation avoidance agreement (DTAA) worries in 2006 and proposed regulatory actions in 2007 and 2008 by SEBI to curb P-Notes. It was not always a rough ride, the key Indian markets also passed through a euphoric phase in the second half of 2007 which eventually ended in 2008 until the markets again recovered in 2009.
Amidst the volatile markets, stock picking is always a tough task and lot of stress is on a tendency of entering at low levels and exiting at high levels. This strategy is aimed for winning but on umpteenth occasions it often results in pains because of the simple reason that it is next impossible to time the markets.
Yes, it’s hard to time the market and also they are governed by various factors originating from domestic or global arena. But if we analyze the patterns of the past 10 years or more, since the start of year 2000, the experience of this timeline can provide some cues about the market behavior in different time-frames of the year. These revelations can help in drawing conclusions on the various market patterns and possibilities on a preliminary basis.
Following is the data for returns generated by BSE Sensex and S&P CNX Nifty from Jan-2000 to June-2012 on a month-on-month basis. The returns calculated on last trading session of each month and calculations initiated from values of 31-Dec-99.
BSE Sensex:
S&P CNX Nifty:
G/L: Gains vs. Losses in a respective month over different years.
Avg.: Average returns of a month across different years.Revelations:
1) June has the most occurrences in favor of gains vs. losses (10/3) followed by December (9/3) for both Sensex and Nifty.
2) Occurrences of losses overpowering gains were the most in March and May respectively.
3) 8 out of 12 months have positive average returns for both indices. The highest average returns generated in December and the lowest average returns generated in March.
4) Out of 150 months, Sensex has generated positive returns on 80 instances and ended with negative bias on 70 instances. Nifty generated positive returns for 82 months and ended up in red on 68 instances.
5) The benchmarks ended in green for 11 months in 2006 and generated negative returns on just one occasion. In 2011, these indices faced red on 9 months and just managed the green shade on 3 occasions.
Annual Patterns:
The indices have performed well in the second half of the year in comparison to the first half of the year. Sensex and Nifty generated average returns of .27% and .22% in first half of the calendar year. In the second half, average returns scaled up to 2.05% for Sensex and 2.15% for Nifty.
If we further prune down the analysis of average returns on a quarterly basis, the results are as mentioned above. The 4th quarter has shown the most impressive returns on an average basis and the 1st quarter has shown the worst performance.
On analyzing the pattern, the cautious approach in the first half of the calendar year can be primarily attributed due to uncertainties originating from budget event (in Feb) and worries on the monsoon front, a major dependency for our agrarian economy.
The investor was more interested in markets in the second half as it revolves around lot of festivities which starts from August and lasts up to December. The consumer demand soars in these times and it gives a boost to revenue figures of the companies. This is also reflected in the higher returns in the market in the second half and especially in the last quarter (Oct-Dec).
The market mood also depends on the investment patterns adopted by FIIs, hedge funds and domestic mutual funds and insurance companies. The respective views of these large players drive the investment behavior of retail investors.
The year-wise story so far:
Since 2000, only on 4 instances the benchmarks slipped into the red. 2008 was the year when the benchmarks were in a firm bear grip, courtesy the sub-prime crisis. 2009 was the year when both the indices rebounded sharply owing to UPA’s stronger-than-foreseen poll victory in their second term and expectations of robust measures to boost economic growth.
The last row in the above stats deals with difference of Sensex and Nifty returns on a year-wise basis. On some occasions the difference is miniscule but on others the difference was large as 7%. Nifty generated 54% returns in 2007 but Sensex managed only 47% in 2007. However in 2009, Sensex outscored Nifty in yearly returns by 5%.
If an amount of 10000 was invested in Sensex and Nifty on closing basis of December 31,1999 then the current valuation of the same, as on date is 34819 for Sensex and 35657 for Nifty. The highest valuation on the same criteria (closing basis of month) was reached in Dec 2010 for Sensex (40970) and in Dec 2007 for Nifty (41464). It reached very close for Nifty in Dec 2010 (41436) but was not able to surpass the previous high it attained in Dec 2007.
Caveat Emptor:
All in all, this is just a preliminary analysis of patterns since year 2000 to have some cues about the market behavior in different time-zones of a year. This pattern emerged out in the selected time-frame and by no means is conveying that this pattern will be continued in the years to come. This is primarily because of lots of domestic and global factors drive the markets performance on a broader basis in different time-frames of the year.
These findings should not be solely used to initiate any investment behavior and investment decisions in equities. Thorough research needs to be undertaken by the investor for stock screening and Equity MF screening activities.
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