December – An angel for markets?

And the angel said unto them, Fear not: for, behold, I bring you good tidings of great joy, which shall be to all people. – Bible

December is the darling month of them all for the markets if history is anything to go by. Yes, the month of December since 1980 has traditionally seen the highest single-month gain in any calendar year in India. According to a report by Morgan Stanley the December month has seen a 4% median return in the 32 years starting 1980. In the last 20 years, only 1994, 2000, 2001, 2004 have seen negative returns during this month.

This market activity in the December month, especially in the second half, has nothing to do with stock valuations. December, being a holiday season, typically sees decreased activity by foreign institutional investors thus resulting in local speculators influencing the market. Their anticipation of higher FII flows in January, when FIIs start fresh allocation, is said to pull the markets up in December.

That said, according to Morgan Stanley’s report, such anticipation of FII flows has not always been proved right. Four out of the last five years’ January months for instance, have seen negative FII flows.

Still, there may be no stopping markets from hoping for new tidings. What would you buy, if you wished to, in December? There appears value in cyclical sectors such as banking, auto as well as capital goods, if you wish to go with the December sentiment!

Not comfortable with these tricky markets? No worry! Continue your mutual fund SIPs. They will help generate long-term returns – by either rallying in Darling December or averaging when markets are wary of the ides of March.