Mid, smallcap stocks rise for 3rd straight day; this analyst sees at least 90% chance of Santa Rally in broader markets

Mid, smallcap stocks rise for 3rd straight day; this analyst sees at least 90% chance of Santa rally in broader markets

Broader markets rose for third straight day on December 22 and also marginally outperformed the benchmarks with Nifty Midcap 100 and Nifty Smallcap 100 rising 0.6% and 0.76% respectively.

Among Nifty Midcap 100 gainers were RVNL, Cochin Shipyard, KEI Industries, which rose 3%-4.5%. The other gainers on the index were NALCO, UPL, SAIL, which rose 3% each.

Among top Nifty SmallCap gainers were Jupiter Wagons and KEC International, which rose 12% and 4.5%, respectively. Rally in Jupiter Wagons came after promoter Tatravagonka AS has acquired a 0.55% stake (28.72 lakh shares) in the company for Rs 135 crore. KEC International shares rose as the engineering company said Delhi High Court kept Power Grid Corporation of India's order pertaining to exclusion of company from participating in tenders in abeyance.

Court has further allowed company to continue to participate in ongoing bids including that of Power Grid.

GRSE, Newgen Software, BEML shares rose 3%-3.5% to be among the other gainers on the smallcap index.

Does this three-day rise in broader markets suggest an impending Santa Claus rally? An analyst said if last 10-year data is any indication, there's a 100% chance of a Santa Rally in smallcap stocks and 90% chance of a season-induced short-term rally in midcap stocks.

The Santa Claus Rally refers to the tendency of stock markets to rise during the last five trading days of December and the first two trading days of January. This seasonal pattern is often characterised by lower trading volumes, year-end portfolio adjustments by institutions and improved investor sentiment ahead of the new year. While historical data suggests a positive market bias during the trading window, the Santa Claus Rally is generally seen as being driven more by sentiment and liquidity rather than underlying fundamentals.

Jahol Prajapati, Research Analyst, SAMCO Securities said Santa Claus Rally has consistently delivered positive returns across Indian equity segments over the last 10 years.

"The data shows that smallcaps have been the biggest beneficiaries, with an average return of 3.55% and a 100% win rate, indicating uninterrupted gains during this seasonal window. Midcaps have also performed strongly, posting an average return of 2.63% with a high 90% success rate, reflecting broad-based participation beyond frontline stocks. Meanwhile, the Nifty 100, representing large caps, has delivered a average return of 1.78%, highlighting a more defensive yet reliable year-end bias," said Prajapati.

"Importantly, downside risk during this period has remained limited, with minimal negative returns even in weaker years. Overall, the chart reinforces that the Santa Claus Rally is not merely a market myth but a repeatable seasonal pattern, where improved sentiment, lighter volumes, and year-end positioning create a favorable environment — especially for mid and small-cap stocks," he added.

Nifty 100's maximum return during Santa Rally in last 10 years has been 4.38% while for BSE Midcap and BSE Smallcap it was 4.45% and 7.23%, respectively, said Prajapati.

Another analyst said Indian markets may see only a selective and modest uptick rather than a sharp festive surge.

"Indian markets may see only a selective and modest uptick rather than a sharp festive surge. Liquidity tends to improve towards the year-end, and short-covering can support prices, but sustained gains will depend on global cues, FII flows and earnings visibility. In the current environment, any Santa Rally is likely to be stock-specific and range-bound, rather than a broad-based rally across benchmark indices," said Siddharth Maurya, Founder & Managing Director, Vibhavangal Anukulakara.