Nov 21, 2001|
Stock Market: Diwali effect...
Considering the start to Samvat 2058 -- BSE Sensex gained 5.4% in two trading sessions -- we undertook a study to identify whether the traditional new year sparked a 'feel good factor' among investors leading to a rise in the markets. Consequently, did entering the market at Diwali time lead to super-normal returns.
As the study dug deeper it seems to have come upon few interesting insights. Taking Diwali day, as 'day 0' the one month, point-to-point return does not seem to show a trend to support any schemes for beating the street. In fact, going by probability, the chances are one will lose money on this long strategy, as the Sensex declined on 6 out of 10 occasions over the past decade. Also, the difference between rise and fall is too small to support a shorting strategy. Hence, there does not seem to be a 'Diwali effect'.
Taking even a three-month window period does not seem to support the theory. Although, the results have reversed, with the markets rising, point-to-point, on 6 out of ten years. The past three year data, however, seems to suggest such a trend developing. But two out of the three years were part of the 18 month bull frenzy, which led to the Sensex crossing 6,000 levels in February '00. The start to this rally was in October '98. The sell off in 2000, also peaked in October leading to a subsequent run-up to Budget '02 before breaking of the scam.
||Preceding 1 mth
||Subsequent 1 mth
||Subsequent 3 mths
||1st Half Feb***
* All returns are point to point ** one month performance *** Performance in Feb 1st half # Last three columns pertain to following year
We delved deeper to identify whether the reversal in results for the 3 month window was also due to a 'January effect'. The study seems to indicate that there is no such thing as 'January effect'. Again the trend in the past three years is due to the reasons mentioned above.
With all this number crunching why not a little more and that seems to have yielded some return. What we term the 'Budget effect'. Sensex performance in the month of February has yielded above average returns. Only on two counts out of ten in the past decade (not including 2001) did the Sensex decline during the concerned period. The trend could be attributed to investors building positions prior to the budget, which is announced on the last day of February. Even in 2001, the Sensex rose by 2.5% in the first half of the budget month. Performance in calendar year '00 & '01 suggests that the Sensex declined in the latter half of February. This is due to investors attempting to bail out -- booking profits -- at higher levels leading to the eventual sell-off.
By the very nature of markets and assuming a large number of participants read this article, the 'Budget effect' is progressively going to get difficult to take advantage off. In the coming year, we may see the Sensex rise in January, as investors attempt to exploit the 'Budget effect'. And, consequently, fall in February, as participants hurry to lock-in superior returns. But, if markets are efficient no investor can consistently earn superior returns, as no trend can persist on a sustained basis. Therefore, soon, there will be no 'Budget effect'.
More Views on News
Jun 10, 2017
Forty Indian investing gurus, as worthy of imitation as the legendary Peter Lynch, can help you get rich in the stock market.
Aug 22, 2017
It's surprising Warren Buffett hasn't warned investors about the expensive stock market? Let us know why.
Aug 22, 2017
Post demonetisation, a cut in bank savings deposits rates was in the offing.
Aug 22, 2017
Today, we are attacked by one preposterous thing after another, each of them even more absurd than the last.
Aug 21, 2017
Most Indians who cannot find jobs, look at becoming self-employed.
More Views on News
Aug 17, 2017
A small-cap Indian company with high-return potential and blue-chip-like stability is set to supplant the Chinese players in this niche segment.
Aug 10, 2017
Bill connects the dots...between money and growth, real money and real resources, gold and cryptocurrencies...and between gold, cryptocurrencies, and time.
Aug 12, 2017
The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.
Aug 10, 2017
Bitcoin hits an all-time high, is there more upside left?
Aug 16, 2017
Ensure your financial Independence, and pledge to start the journey towards financial freedom today!
Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement. LEGAL DISCLAIMER:
Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here
. The performance data quoted represents past performance and does not guarantee future results.SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.
Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: email@example.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407