December doles out profit, almost always

Month December has proved to be profitable for the benchmark Sensex. In 10 out of the 14 preceding years, the Bombay Stock Exchange (BSE) index has given returns in that month.

In fact, in those 10 years, average returns in December over the November average has been between 1.15 per cent in 1998 and 9.96 per cent in 2003. On the other hand, when December has not been so lucky (four out of 14 years), average monthly losses have ranged between 2.7 per cent and 3.6 per cent, according to the data provided by Khandwala Securities.
 

TELLING FIGURES
	Returns frequency		Returns range (%)
	Positive	Negative	Positive	Negative
January	10	5	0.5 - 16.8	7.6 - 1.4
February	10	5	0.3 - 14.3	8.3 - 1.6
March	6	9	1.3 - 12.3	11.7 - 2.0
April	7	8	0.3 - 8.2	8.4 - 1.3
May	7	8	1.5 - 12.5	13.3 - 0.1
June	9	6	1.3 - 11.7	15.2 - 1.4
July	7	8	3.1 - 11.3	8.5 - 0.0
August	9	6	0.5 - 8.5	8.7 - 1.3
September	10	5	1.1 - 8.6	11.7 - 0.2
October	8	7	0.5 - 15.3	24.3 - 0.6
November	9	6	1.6 - 7.9	10.4 - 3.7
December *	10	4	1.2 - 9.6	3.6 - 2.7
* Excludes December 2008.                          Source : Khandwala Securities

The Sensex is currently trading around 2.83 per cent below the November 2008 average of 9,455. So, if average returns in the current month have to be in the positive zone, then the Sensex has to maintain the current level of 9,690 during the remaining 12 trading days.

Even if the Sensex closes above 13,500 at least once and maintains an average of 9,185 for the remaining 11 trading days, there is a possibility of making profit in the month this year too.

Khandwala Securities has calculated the average monthly returns based on the average value of the Sensex during each month over the average value of the index in the preceding month.

The data include 15 years’ daily closing of the Sensex as the market has transformed significantly since 1994 with the arrival of foreign institutional investors (FIIs), the introduction of rolling system and the dematerialisation of securities.

Interestingly, the three winter months – December, January and February – have given some of the highest returns.

Almost one-third of the times, these three months drilled much little holes in investors’ pockets compared to other months.

According to the Khandwala Securities’ study, the Sensex data do not point to any clear trend, suggesting seasonality in the stock market except for the fact that the most profitable December is the annual account closing month for FIIs.

Another visible trend is that March has been the most loser month (nine out of 15), which is the account closing month for domestic investors and companies.

The most unsuccessful month has brought losses between 2 and 11.7 per cent. However, when the month has been benign, it has given returns in the range of 1.3-12.3 per cent.