December market trends: A look at trends, averages and historical patterns in the last 26 years

If we look back at November, FIIs (Foreign Institutional Investors) sold ₹45,974 crore, following a record sell-off of ₹1,14,445 crore in October. The benchmark indices have declined by about 8% since the high of September 27. This downturn was initially triggered by a rebound in Chinese equities, and the decline was further exacerbated by disappointing earnings for the second quarter of the financial year. The slowdown in profitability doesn’t justify premium valuations—that’s how the market operates.

This is the recent market scenario. However, what’s more interesting is the month of December, which historically reveals intriguing data patterns. By analysing trends, averages, and extremes specific to this month, we can uncover valuable insights. Let’s break down the findings.

What are seasonal returns?

Seasonal returns refer to the tendency of certain months to deliver better-than-average returns based on historical trends. As December approaches, the focus shifts to FPI (Foreign Portfolio Investors) activity. This period often witnesses tax-loss harvesting, rebalancing, and profit booking as the year comes to a close.

Tax-loss harvesting

The term itself indicates its relevance to tax planning. While more common during the final quarter of the Indian financial year (January to March), some FPIs and large investors start adjusting their portfolios in December to realise losses on underperforming stocks. This strategy helps offset capital gains earned earlier in the financial year.

Profit booking

In December, FPIs may also book profits on stocks that have shown significant growth during the year. This is often done to lock in gains and manage portfolios before the fiscal year ends, while simultaneously addressing tax liabilities.

Portfolio rebalancing

FPIs might rebalance their portfolios in December to align with year-end targets, adjust for sector performance, or prepare for the coming year’s market trends. This activity can result in increased volatility and price movements in the stock market.

Mean (Average)

The mean is calculated by dividing the total of all December returns by the number of years, giving us the overall average return for the month. For the Nifty 50, the mean December return is 3.19% for past 26 years, indicating that the index tends to perform positively in December on average.

Median

The median is the middle value when all returns are arranged in order. It reflects typical performance and isn’t influenced by extreme highs or lows. The median return is 2.58% for past 26 years, slightly lower than the mean, suggesting that most years saw moderate December gains.

Maximum and minimum returns

These represent the best and worst December performances over the years.

• Maximum Return: A significant 16.38% gain in December 2003, marking an exceptional year-end rally.
• Minimum Return: A sharp decline of -4.30% in December 2011.

Percentiles

Percentiles divide data into sections, illustrating how values are distributed.

• The 75th percentile return is 6.8%, indicating that in 25% of the years, December returns exceeded this level.
• The 25th percentile return is -0.1%, meaning that in the bottom 25% of years, returns were slightly negative but not excessively so.

What does the data show?

Over the 26-year period:

Exceptional performances

The year 2003 recorded the highest December gain of 16.38%, contributing to an annual return of over 71%. This reflected strong investor optimism at the time.

Worst December

In 2011, the index lost 4.30%, in line with a weak annual performance of -24.62%, largely due to global economic concerns.

Consistency of moderate gains

In years like 2020 and 2017, moderate December gains (around 7-8%) aligned with overall strong annual returns.

The NIFTY50’s December seasonality suggests that the month is historically favourable, with a higher likelihood of gains than losses. With an average return exceeding 3%, December often reflects year-end optimism and strategic investor activity.

However, while the trend is generally positive, outliers like 2011 remind us that unexpected declines can occur. This historical analysis highlights December as a month worth monitoring for traders and investors alike.

This article is only for educational purpose. We do not recommend any particular stock, securities and strategies for trading. The securities quoted are exemplary and are not recommendatory. The stock names mentioned in this article are purely for showing how to do analysis. Take your own decision before trading and investing.