Stock market bears have it all in their favour in July except history

Investor sentiment stayed downbeat as the market entered July with hope to rebound from three months of losses for the benchmark equity indices.

Fears of an economic recession in the US and a global economic slowdown triggered by a synchronous tightening of monetary policies by the central banks world over have pushed the investor community to the edge.

The sustained stress of the economy from supply-chain issues exacerbated by China’s ‘Zero Covid’ policy, elevated global crude oil prices and multi-year high inflation have made risk assets like equities unattractive.

Back home, no wonder foreign portfolio investors kick-started the July derivative series with net short positions of 111,933 contracts of the Nifty 50 July futures reflecting their bearish attitude towards the Indian equity market.

Even proprietary traders such as brokerages have started the July series with net short positions on the Nifty 50 betting against their retail clients, who have net long positions of 129,041 contracts on the index futures.

“A dip towards 15,000 points cannot be ruled out. That’s the base case,” said Gaurav Ratnaparkhi, head of technical research at Sharekhan in a recent interview to Moneycontrol. He was not the only one. Yesha Shah, head of equity research at Samco Securities suspects that short-term trend in the market will remain bearish.

Yet, history may work against traders hoping to profit from short-selling the market in July.

The benchmark Nifty 50 index has not seen negative returns for four consecutive months in the past 20 years. In 315 months of consecutive trading since its inception in April 1996, the occurrence of four consecutive months of decline for the benchmark index has been a measly three times. Probabilistically speaking, the chance of four straight months of losses for the Nifty 50 are less than 1 percent.

The previous instance when the benchmark index gave four straight months of negative returns was between June and September of 2001 following the Ketan Parekh scam of March 2001 and the terror attack on New York’s Twin Towers.

That said, investors may see some positive returns in July several factors will have to move in their favour such as continued correction in global commodity prices easing concerns of aggressive rate hikes by the US Federal Reserve, acceleration in the spread and intensity of the ongoing monsoon rains across the country and resilient commentary from corporate India, which reports its June quarter earnings this month.

Despite the wind in their sails, the odds of making money in July appear to be stacked against short sellers.Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.