On Wall Street, many believe in what is called the ‘first five days’ rule, which says a solid first five days for Dow signal a good start to the month and a higher January should mean a higher year.
On Dalal Street, January has been known to be a freaky month. Sensex has a record of showing wild swings, gaining up to 11 per cent in the month in some years and losing up to 13 per cent in some others. In last 15 years, the 30-pack has closed the month higher only in eight.
After a strong December, January has kicked off on a firm note for Dalal Street this year, with the equity indices hitting fresh record highs amid optimism over vaccine approval in India for restricted use.
History suggests while December has usually been a good month for equities, January has been known to be volatile. So, where is the 30-pack headed this January?
Analysts said while valuations are high and there could be a short-term correction, any drop in stock prices should be seen as an opportunity to buy.
Key third quarter earnings generally tend to be out in January. The month also sees a buildup to the Union Budget, which is presented on February 1. This time around, the approval given to the Covid vaccines in India has been a big positive, but rising number of virus cases globally and fresh lockdowns in some parts of the world, including the UK, are proving to be key negatives for the market.
Data compiled from BSE database suggests Sensex fell 1.29 per cent last January and but rose 0.52 per cent for the month in the year before. It soared 5.60 per cent in January 2018 and 3.87 per cent in 2017, respectively, but plunged 4.77 per cent in January 2016. In January 2015, it climbed 6.12 per cent and was down 3.10 per cent in January 2014.
Among the most volatile January months, Sensex shot up 11.25 per cent in January 2012, plummeted 13 per cent in January 2008, plunged 11 per cent in January 2011 and tanked 6.34 per cent in January 2010. Overall, the index ended the month higher in eight of last 15 years.
“The market may turn a little volatile sometime in January. Later this year, there could be a sizable correction,” said Gautam Shah of Goldilocks Premium Research.
He said there was a time when the market was discounting just a few months into the future, but today’s prices show the market is looking a year ahead. “Sometimes, this can be very difficult to comprehend,” he said.
IDBI Capital expects some correction or consolidation in January, but said the trend should remain positive and, hence, any correction should be used to create long positions.
“Until and unless major moving averages get breached decisively, our view will continue to remain positive,” it said.
Brokerage Nirmal Bang said the expectations are third quarter earnings will be pretty good, driven by further opening up of the economy and the festive spirits, leading to an increase in demand and, thus, commodity prices.
“In the latter half of January, Budget expectations will also get built in and that can support the market. Market sentiment may also get a boost from the start of vaccine administration in India to frontline workers,” it said.
Sunil Subramaniam, MD & CEO at Sundaram Mutual, expects the coming Budget to be one of the most important ones of the Modi regime.
“There is a lot of slack for the Indian government compared with others from a rating agency perspective. So I think the government will stretch the rupee and invest in infrastructure in a fairly big manner. While that will take time to translate on the ground in terms of the government’s capex expenditure and then the follow through, if you have an 18-month view, a portfolio built on cyclical, capital goods, building materials, cement, steel with a staggered approach can deliver handsomely,” he said.