Key Trends in Indian Stock Markets for December 2024

December has historically been a strong month for the Indian stock market, with a 73% probability of positive returns over the past 26 years. This month often delivers optimism driven by portfolio rebalancing, festive season boosts, and active participation by foreign investors. Let’s dive into the key trends shaping the markets this December.

December: A Seasonally Strong Month

Over the last 26 years, the Nifty index has shown an average December return of 3.19%, with a median of 2.58%. Positive returns dominate, with the highest recorded at 16.38% in 2003. Even though December has been favourable most years, a few exceptions, such as 2011 (-4.30%) and 2022 (-3.50%), remind investors to remain cautious.

Historical trends show that the top-performing sectors during December include:

• Consumer Goods: Festive demand boosts sales and profits.
• IT: Benefiting from global contract renewals and budget finalisations.
• Banking and Financial Services: Increased lending and spending activity support growth.

Sectoral Winners and Losers

Outperforming Sectors

• Metals: With an average growth rate of 4.37%, Nifty Metal often outshines, driven by strong demand.
• IT and Realty: Both have historically delivered above-average returns in December.
• Public Sector Enterprises and Commodities: Resilient performance linked to government-driven growth initiatives.

Underperforming Sectors

• Infrastructure and Pharma: Faced challenges, growing only modestly.
• Energy and FMCG: Generally defensive sectors with slower December growth.

RBI Moves and Inflation Impact

The Reserve Bank of India (RBI) has been actively balancing inflation and growth, shaping the market outlook:

• Inflation: November’s CPI inflation eased to 5.48% from October’s 6.2%, thanks to cooling food prices.
• CRR Cut: A 50 bps reduction in the Cash Reserve Ratio, effective mid-December, has infused ₹1.16 lakh crore into the banking system. This move supports liquidity and boosts market sentiment.
• Repo Rate: Kept steady at 6.50%, signaling stability, but potential rate cuts in early 2025 could drive bullish momentum by reducing borrowing costs.

These measures reflect the RBI’s focus on supporting economic recovery while addressing inflationary pressures.

Volatility in December Markets

December tends to be a volatile month, driven by portfolio rebalancing, profit booking, and festive season activity. Studies reveal that December’s average market volatility is higher than in other months, presenting both opportunities and risks for investors.

Key factors contributing to December volatility:

• Tax-Loss Harvesting: Investors sell underperforming stocks to offset capital gains, impacting specific sectors.
• Profit Booking: Significant gains through the year are often locked in during December.
• Portfolio Rebalancing: Institutional investors adjust portfolios ahead of the new year.

Comparing December with November and January

Despite its positive reputation, December lags behind November and January in mean returns:

• November: Average return of 1.545% for NIFTY 500, outperforming December.
• January: Slightly stronger performance with average returns of 1.474%.

December also exhibits higher volatility, making it a riskier month compared to these counterparts.

What Lies Ahead for December 2024?

The Indian stock market in December 2024 is expected to remain optimistic despite some economic challenges:

• The GDP growth forecast has been revised downward to 6.6% for FY25, reflecting industrial slowdowns and muted demand.
• Inflation concerns persist, with the RBI projecting 4.8% inflation for FY25 due to food price volatility and global supply chain disruptions.

However, liquidity injections via CRR cuts and potential rate reductions in early 2025 could bolster market sentiment. Strong-performing sectors like consumer goods and IT continue to provide attractive investment opportunities.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.