After Christmas, everyone tends to talk about the Santa Claus rally. But what is the rally about, and is it relevant for the Indian Markets? Let’s find out.
Have you ever wondered where Santa gets money from to buy gifts every Christmas?
Well, there’s a secret!
And the secret is that, after Christmas, Santa and his friend reindeer go on a sleigh ride full of cash.
This is not a delusion. The cash ride exists.
Well, in the stock market!
In the US, there is a phenomenon called the Santa Claus rally, where the markets climb higher in the last week of December, and the rally lasts till the first two trading sessions of the new year.
According to Business Line, the US markets have seen a Santa Claus rally 34 times in 45 years.
Reason Behind The Santa Claus Rally
The actual reason behind the rally is unknown, and this has been a matter of debate for a long time. But, there are a few assumptions. Let’s look at those.
- Institutional investors stay out of the market during the holiday season and wait for year-end closing. So, during this time, the volumes are shallow because of the reduced participation of institutional investors. The rally is led by the positive sentiment of the festive season and the participation of retail investors.
- At the year end, employees in the US earn a festive bonus leading to a high investable corpus, which flows into the stock markets during the end of the year and the new year.
- Lastly, the US stock market is said to be a trendsetter. This means when there is a positive sentiment in the US stock markets; it radiates the sentiments to the Asian markets as well. Similarly, when there is a sell-off in the US markets, the next day, we see the impact of the sentiment in our markets too.
So, the positive sentiment of the Santa Claus rally in the US has a significant positive impact on the Indian markets as well.
But, apart from these, various factors and situations affect the Indian stock markets. So, there is no guarantee that the Santa Claus rally will happen.
If we take history as a guide, the Santa Claus rally is seen in the Indian markets. In the past 16 years, we have seen the Santa Claus rally in Nifty50 13 times.
According to Economic Times, in these seven days of the Santa Claus rally, Nifty has offered an average return of 2% in the past 21 years since 2001-2002.
Even though this is an interesting concept to learn about, you must not get carried with such short-term trends. Remember to be mindful before investing and focus on your perspective of long-term wealth creation.
After all, the market moves on its own accord. So, take it with a pinch of salt.