Moneycontrol
Oct 18, 2017 02:37 PM IST | Source: Moneycontrol.com

Last 10 years' data suggests Diwali month belongs to bears; will 2017 be different?

Historical data suggest that Nifty closed in red in the Diwali month in six out of last ten years. It plunged the most in the year 2008 when the Nifty saw a steep fall of nearly 30 percent, followed by the year 2009 when it fell by 7 percent, and in the year 2010 Nifty saw a decline of 2.5 percent.

Kshitij Anand @kshanand

The festival of lights, Diwali, is just around the corner and the market seems to be all charged for the event.

The Nifty50 rose over 100 points to reclaim its crucial resistance level of 10,000 in the month Diwali month, October, but anecdotal evidence suggests that it has not been an easy drive for the bulls.

Historical data suggest that Nifty closed in red in the Diwali month in six out of last ten years. It plunged the most in the year 2008 when the Nifty saw a steep fall of nearly 30 percent, followed by the year 2009 when it fell by 7 percent, and in the year 2010 Nifty saw a decline of 2.5 percent.

The bulls failed to regain their foothold on D-Street in the month when this auspicious festive of lights is celebrated. The Nifty index gained the most in the year 2011 when it rose by 8 percent, followed by the year 2012 when the index rallied a little over 5 percent, and then in 2014 when it saw a surge of 2.5 percent.

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Since the Modi government came to power, Nifty closed positive in the year 2014 and 2016 when it rose by 2.5 percent and 0.16 percent respectively. The Nifty slipped by 1.6 percent in the year 2015.

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This year Diwali is falling in the month of October on 19th. Muhurat Trading, a customary trading tradition on the day of Diwali is unique to India where markets open for a short duration in the evening on the Diwali day.

Markets open for trading to pay obeisance to Lakshmi, the Hindu goddess of wealth and prosperity. Traders decorate their offices across India and do Lakshmi Puja.

Trading on the Diwali day with token orders at a specific Muhurat time is believed to bring prosperity and wealth for the year ahead for traders.

The Nifty50 is now trading above its crucial psychological resistance level of 10,000 and is slowly and steadily moving towards its record high of 10,178. However, before that, there are plenty of resistance levels which Nifty has to surpass.

But, overall, 2017 has been an eventful year for markets. The index has risen over 13 percent since last Diwali but mid and smallcap stocks stood out as clear outperformers.

The valuations do appear expensive but expectations of a bounce back in earnings growth and inflow of domestic liquidity should support the new normal for Indian markets.

Technically, Nifty appears to be moving on a strong footing ahead of the festival but we are trading near key resistance levels; hence, mild profit booking cannot be ruled out.

“Short term trends for Nifty50 are looking uncertain whereas medium-term picture is deteriorating. Nevertheless, we like to watch 10,080 levels as a catalyst which throws up more clues about future direction,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in told Moneycontrol.

“In case Nifty decisively breakout above this point then certainly we will look for new highs towards 10,500 as that level is hardly one percent from the critical resistance point of 10,080. However, our preferred view will remain a range bound scenario between 9750 – 10,100 levels,” he said.
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