Will Indian markets see 2023-like Santa rally this time? Here's what analysts say

Market observers remain divided on whether previous years' gains can be replicated as the domestic markets have slipped into correction territory, with Nifty dropping nearly 10% from September peak.

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26 Aug, 2025 12:21

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There is a lot of buzz around a Santa rally in the domestic markets, which has reignited investor enthusiasm amid a market lull, of late.

The Santa rally, characterised by a sharp uptick in stock prices between Christmas and New Year, was notably evident in previous years, when benchmark indices surged in the December month. However, this year, the markets remained on the edge amid subdued quarterly earnings and a relentless outflow by the Foreign institutional investors (FIIs).

Market observers remain divided on whether previous years' gains can be replicated as the domestic markets have slipped into correction territory, with Nifty dropping nearly 10 percent from its all-time high of 26,277.35 reached on September 27, 2024. The NSE Nifty dropped to its intraday low of 23,709.65 on December 24, declining 9.77 percent from its September peak.

Nifty returns in December 

With a 0.31 percent decline so far this month, the chances of a 'Santa rally' in Indian markets appear dim, say experts. While the past two years have witnessed modest year-end gains, analysts suggest this year’s market direction will depend on key support levels, global factors and institutional activity.

Vikas Jain, Head of Research at Reliance Securities, noted that in 2022 and 2023, Indian indices saw gains of 1.8-2 percent in the final week of December. However, this year, volatility driven by the derivatives monthly expiry could influence sectoral and stock movements.

What Technicals Suggest? 

“If key supports of 24,000—the round number and the highest put open interest (OI) for the monthly expiry—are maintained, along with the 200-day moving average at 23,800, we could see a bounce,” said Jain. He added that such a rebound could push indices back to 24,800, with a potential breakout to 25,200 levels.

Meanwhile, Puneet Sharma, CEO and Fund Manager at Whitespace Alpha, said the concept of a Santa Rally' where stock markets rise during the last week of December, is well-documented in Western markets. However, the Indian context tells a different story.

“Over the last five years, the NIFTY 50 and Sensex have shown no consistent year-end trend. While gains have occurred, they lack the regularity observed in Western markets,” Sharma said. He attributed any rally in December to macroeconomic fundamentals and global cues rather than seasonal patterns.

“The direction of Indian markets this December will depend on global interest rate policies, geopolitical developments, and institutional flows,” he added.

Stock Market LIVE Updates

Why Santa Rally May Not Apply to Indian Markets

1) Stable Trading Volumes: Indian markets maintain steady trading activity during the holiday season, reducing the scope for seasonal price anomalies.

2) Market Dynamics: Year-end adjustments by Domestic Institutional Investors (DIIs) and Foreign Institutional Investors (FIIs) influence trends but are not tied to holiday sentiment.

3) Economic Resilience: India’s economic indicators and corporate earnings provide a consistent backdrop, mitigating seasonal effects.

However, Yashovardhan Khemka, Senior Manager of Research & Analytics at Abans Holdings, expressed optimism for a potential rally this year. He highlighted that markets have been in a consolidation phase following corrections due to subdued Q2 earnings, setting the stage for a possible breakout.

“Over the past five years, mid-cap and small-cap indices have delivered average returns of 4.37% and 5.96%, respectively, during this period. In contrast, the NIFTY 50 has averaged 2.61%. Notably, small and mid-cap indices have posted gains in all five years, while the NIFTY 50 delivered positive returns in four,” Khemka observed.

Eyes on Upcoming Policy Events

While analysts discuss the likelihood of a Santa Rally, many believe investors are increasingly focusing on upcoming events such as the Reserve Bank of India’s monetary policy review from February 5-7, 2025, and the Union Budget 2025.

Tarun Singh, Founder and MD of Highbrow Securities, said, “Pre-budget discussions will provide critical insights into the market’s potential trajectory. Despite short-term uncertainties, my long-term outlook for the Indian economy remains optimistic.”

Additionally, investors are also bracing for Donald Trump's swearing-in in January and his stand on Tariffs and the upcoming US Feed meeting, especially after th Fed sees only two rate cuts in 2025 (instead of an earlier forecast of four).

Disclaimer: The views and investment tips expressed by experts on Moneycontrol are their own and not those of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.