Santa skips D-Street during second-quietest December in a decade

If market closes around these levels, it would also mark the fifth time in the last 10 years that the Sensex has posted negative returns in December. In contrast, last year, markets saw an impressive return of 7.8% during the holiday month. Despite the downturn, experts said this market dip presents an opportunity for savvy investors.

Deven Choksey, managing director of DRChoksey FinServ Pvt. Ltd., attributed the December drop to profit-booking, a shift in sector preferences toward IPOs, and a pullback of foreign portfolio investors (FPIs) in anticipation of a stronger dollar and a weaker rupee. “Large-cap stocks were sold off to fund investments in IPO-related opportunities for better returns,” Choksey explained. “I believe growth concerns are overblown, and see this as a buying opportunity.”

Deepak Jasani, head of retail research at HDFC Securities, concurred, citing FPI net selling driven by year-end considerations and disappointing macro data, particularly weak corporate earnings. “Much of the FPI inflow has been diverted to the primary market, putting additional pressure on the secondary market,” he added.

Also read Indian stock markets review 2024: A tale of two halves

Despite December’s turbulence, analysts remain optimistic about the market’s long-term outlook. Choksey said that robust IPO activity in 2024, which raised ₹1.6 trillion, could be the precursor to even greater volumes in 2025, potentially exceeding ₹2 trillion.

But experts also warn of potential volatility, especially with the election of Donald Trump in the US and the implications of his policies. “Next year will likely be very volatile. We’ll need to closely monitor inflation and growth trends,” said Jasani.

As a result, they predict a choppy ride ahead, with earnings season playing a crucial role in shaping market movements. “The IT sector might underperform and could be a laggard, while selective mid- and small-cap stocks may continue to perform well. Large-cap stocks, however, could remain in a volatile range,” said Abhilash Pagaria, head of Nuvama Alternative & Quantitative Research.

While December may have been unusually quiet recently, history tells a different story. A Mint analysis reveals that over the long term, December has been surprisingly kind to investors. Over the last 45 years, the month has delivered positive returns in roughly three out of every four years. And not just positive–often stellar: December ranked among the top three performing months an impressive 12 times, and landed near the top (ranks 4–5) in another 12. However, it was the worst performer in both 1990 and 2014. After the nearly 6% drop in October, December is on track to be the second-worst month in 2024 too.

Also read Zomato upends tradition with Sensex entry

Jasani explained that while overseas investors may book profits in December, local investors often buy in anticipation of better opportunities in January. “The key is whether these lower prices entice enough local buying to offset selling pressure, which is why December often ends positively, despite some selling.”

The sharp decline in October was primarily driven by an exodus of overseas investors, who withdrew ₹94,017 crore from Indian equities, followed by another ₹21,612 crore in November. “FPIs have been selling due to concerns like currency depreciation and high valuations. Until valuations are correct, we may not see immediate stability or renewed momentum,” added Choksey. 

However, December has seen ₹20,071 crore in overseas inflows so far. “It will take time for FPI inflows to pick up. The pressure from dollar appreciation, driven by factors like US tariff policies and other economic dynamics, is causing currency depreciation elsewhere. Until this pressure stabilizes, significant inflows are unlikely,” he added further.

Also read 2024: A year of IPO boom as retail interest zooms

Do foreign investors really take a holiday break, leaving markets to drift? The popular narrative suggests flows dry up, often leading to a sell off ahead of Christmas and New Year. But a 23-year analysis of National Securities Depository Ltd data reveals a surprising twist: in most Decembers, FPIs have actually been buying, not selling. Outflows occurred in just five of those years, and even a slowdown in flows compared to November was seen in only 10 instances. The data paints a picture far different from the holiday-induced market lull we often expect.