Will Santa Make a Stop at Market this Time too?

By M H Ahssan

Since 2000, Sensex Never Hit Negative Between Christmas Eve & New Year

We never needed it more: a Santa Claus rally. The big question is whether it will happen in 2008? Much like the Wall Street, history says Indian stock markets tend to rally from Christmas Eve to the New Year’s Day (or the first trading day of the New Year). FIIs or mutual funds or big investors may not be bullish but if Santa has his way, investors will have something nice to finish the year, which saw sensex lose over 50% of its value.

If investors want some hope, they can take heart from the fact that from 2000 onwards the sensex has never given negative returns for this period, which falls within the Yuletide.

Santa Claus rallies are said to happen as people tend to consume more, invest for tax breaks and more importantly, pessimists stay on vacation during this week, say experts.

For the rally to happen in 2008, the start seems to be a little off the track with sensex losing 240 point on Friday. But people haven’t lost hope.

“An encore of 2003, 2004 or even 2006 could see sensex gain anything between 3% and 6%. The sentiment not withstanding, we never know what markets might throw at us,” an institutional head at a local brokerage said. A rally at this point could be a possibility because downsides from slowdown and lesser profits in third quarter are already there in the prices to a certain extent, he said.

For a 6-7 day window that exists between Christmas Eve and the first trading of the New Year, Santa has made decent stops at the Indian stock markets during his yearly journey on the reindeer-pulled sleigh in the past few years.

The year 2000 saw the sensex gain 1.3%, 2001 witnessed the index inched up by 0.5%, 2002 landed a 1.2% gain. Santa was most generous in the years such as 2003 (4.9%), 2004 (2.8%), 2006 (3.5%) and 2007 (2.5%). “This trend could be because of a tendency of the stock market to rise between December 31 and the end of the first week in January: in short what we call the January effect. Probably, the Santa Claus rally is just a precursor of that. Also as the year ends, there is an increasing propensity amongst investors to put money into stock-market linked instruments,” a Mumbai-based broker said.

With valuations depressed as they are now, chances of fund managers buying into stocks now are fairly high, he adds.

Sensex loses 240 points, fourth day in succession
Sliding for the fourth consecutive session, the BSE Sensex lost a further 240 points to close at 9,329. The day’s losses came on the back of news that the advance tax collections for the quarter were 22% less on a yearly basis and talks in late session that there were chances of further escalation of tensions between India and Pakistan. Friday’s slide took the weekly sensex loss to 771 points or 7.6%. The only positive news was that the annual rate of inflation dropped further to 6.61%, however amid bearish sentiment, that news was quickly discounted by the market. The day’s slide led to a Rs 53,000 crore loss in investors’ wealth with BSE market capitalisation now at Rs 30.1 lakh crore. Market players said government’s announcement that advance tax collections were lower pointed to lower profitability for the corporates and hence the slide in the market. The day’s slide was led by IT, real estate, consumer durables and banks. Monday’s market could see continuation of the current trend of cautious trading with a downward bias, dealers said. Among the sensex stocks, Reliance Infra lost over 6% to close at Rs 542. Other top losers were DLF, down 6% at Rs 276, Infosys lost 5.3% at Rs 1,110 and ICICI Bank ended 5.2% at Rs 418. Of the 30 sensex stocks, 25 ended with a loss compared to five which ended higher.