)
Returns in December have been higher than the average monthly returns for the rest of the year, three times out of five, in the last 10 years. Interestingly, these Santa Clause rallies seem to be largely fuelled by inflows from foreign institutional investors (FIIs). Foreign inflows in December have done better than the average for the rest of the year on seven occasions in the last decade.
On the other hand, January returns have been lower than the preceding December's on seven occasions in the period under consideration. The US Federal Reserve's decision to reduce its monthly liquidity injections by $10 billion may be a headwind for foreign inflows in the new-year, adding to the possibility that this January may bring even less new-year cheer than usual, and a liquidity hangover to boot
