Nifty 50 October Outlook: Strong Seasonal Trends and 80% Gains in Last Decade

The Indian equity markets, represented by the Sensex and Nifty 50 indices, experienced a decline of over a percent on the last trading day of September. Despite this drop, both indices have managed to gain approximately 3% throughout the month. Analysts remain optimistic heading into October, citing historical data showing that the Nifty 50 has recorded positive closing figures in eight out of the last ten Octobers.

JM Financial’s analysis reveals a strong seasonal pattern for the Nifty 50 in October. Over the past decade, the index has finished positively in eight instances, with an average return of 1.7% and a median return of 2.5%, indicating a favorable outlook for investors.

Understanding seasonality in the stock market is crucial; it refers to the tendency of an index or sector to perform better during specific periods of the year and to underperform during others. This insight can help investors make informed decisions regarding their portfolios.

Furthermore, the Nifty Mid-cap index has demonstrated robust seasonal performance, achieving positive returns in nine of the previous ten years with an average return of 2.1% and a median return of 2.2%. However, it has outperformed the Nifty 50 in only five instances, achieving an average outperformance of 0.4%, according to JM Financial’s insights.

According to Vinod Nair, Head of Research at Geojit Financial Services, changes in the global equity environment, particularly following the US Federal Reserve’s substantial interest rate reductions, could impact the Indian markets positively.

Nair highlights that the US markets are likely to remain strong, providing a supportive environment for Indian markets. He emphasizes that the second quarter earnings, following a lackluster first quarter, will be crucial for market sentiment as growth is anticipated to return, especially in October.

Looking ahead, Nair points out that essential sectors, including consumption, infrastructure, IT, and pharma, are expected to remain at the forefront of market activity.

In the consumption domain, he notes a resurgence in the FMCG sector, which is beginning to show positive momentum due to valuations falling below long-term averages and declining food prices, leading to improved demand forecasts.

The resurgence of the US economy is projected to bolster domestic IT and pharma sectors, while anticipated increases in government spending may favor construction and EPC (Engineering, Procurement, and Construction) companies, Nair added.

Sector Seasonality

Different market sectors consistently display distinct seasonal trends in performance. According to JM Financial, October is generally a favorable month for the Bank Nifty, alongside the auto, metals, and energy sectors, which have demonstrated historical gains.

The Bank Nifty has shown a particularly strong performance, closing positively on nine occasions with an average return of 3.9% and a median return of 3.7%. Other indices such as auto, metals, and energy have consistently closed positively on around seven occasions, contributing returns ranging from 2.5% to 2.7%.

Conversely, the Nifty FMCG index has struggled during October, facing negativity in seven instances with average and median declines of 0.6% and 0.5%, respectively.

Sector Relative Performance Versus Nifty

Taking into account the seasonal trends, JM Financial’s analysis extends to the relative performance of sectors compared to the Nifty index. In October, the Nifty Energy and Nifty PSU Banks indices have outperformed the benchmark Nifty on seven occasions, demonstrating average outperformance rates of 0.9% and 5.7%, respectively.

In contrast, the Nifty IT sector underperformed against the Nifty 50 on eight occasions during October, while the Nifty FMCG sector showed similar underperformance in seven instances.

Stocks Seasonality

Notably, certain stocks have exhibited remarkable seasonality trends. For instance, stocks such as Canara Bank, Delta Corp, TVS Motor Company, ICICI Bank, NMDC, Power Finance Corporation, Steel Authority of India (SAIL), REC, GMR Airport Infrastructure, and Manappuram Finance have closed positively on eight or more occasions, with average returns exceeding 8%, according to JM Financial’s report.

In contrast, stocks that closed negatively on seven or more occasions, with average declines surpassing 3%, included Vodafone Idea, Astral, and Biocon.

Disclaimer: The insights and recommendations provided reflect the views of individual analysts or brokerage firms, not of Mint. Investors are encouraged to consult certified experts before making investment decisions.