Markets set to snap 5-month decline in March, April's seasonality hints at more gains

Seasonality refers to a consistent pattern of price returns observed within a particular month over the years

With markets staging a strong recovery so far in March after enduring five consecutive months of decline, analysts at JM Financial have observed a positive price seasonality in the month of April for Nifty. Seasonality refers to a consistent pattern of price returns observed within a particular month over the years.

Over the past 10 years, Nifty has ended April in the green on 7 occasions, delivering an average return of 2.4 percent and a median return of 1.3 percent. Meanwhile, the Nifty Midcap index has displayed an even stronger seasonal trend, closing positive in 8 out of 10 instances, with an average return of 4 percent and a median return of 4.3 percent.

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Interestingly, the Nifty Midcap index has outperformed Nifty in 9 out of the last 10 years, with an average outperformance of 1.6 percent and a median outperformance of 2 percent, according to JM Financial analysts.

Amongst sectors, metals, autos, energy, and CPSE indices have closed in the green on 8 occasions each with average return of 7 percent, 5 percent, 4.6 percent, and 3.6 percent, respectively.

The metals sector has particularly stood out, outperforming Nifty on 9 occasions with an average outperformance of 4.6 percent and a median outperformance of 2 percent. Similarly, the auto and CPSE indices have outperformed Nifty on 7 occasions, with average outperformance figures of 2.5 percent and 1.2 percent, respectively.

On the other hand, banks and FMCG indices have also exhibited positive seasonal trends, closing in the green on 7 occasions with average returns of 3.4 percent and 2 percent, respectively.

However, the technology sector has displayed weak seasonality in April, closing in the red on 7 occasions with an average return of -1 percent. Additionally, tech stocks have underperformed Nifty on 8 occasions, with an average underperformance of 3.4 percent and a median underperformance of 5 percent.

Among stocks in the Futures & Options (F&O) universe, several companies have consistently delivered strong positive returns in April. Glenmark Pharma, SAIL, CESC, JSW Steel, Vedanta, Aarti Industries, Aurobindo Pharma, APL Apollo Tubes, and SRF have all closed in the green with more than an 80 percent probability, delivering an average positive return of over 8 percent.

Conversely, Infosys, HCL Tech, Solar Industries India, and Wipro have demonstrated a higher probability of closing in the red, with a negative return of over 7 percent in April. These stocks have recorded a probability of decline exceeding 70 percent, highlighting the historical seasonal weakness in the tech sector during this period.

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