Nifty 50 October Outlook: Indian index shows strong seasonal trends, gains in 8 of the last 10 years

The benchmark Indian equity indices, Sensex and Nifty, were trading over a per cent lower on Friday, September 30. Despite the slump on the last day of the month, the frontline indices gained around 3% in September. Analysts are optimistic that the market may continue its upward momentum in October, as the Nifty 50 has closed in the green in eight of the last ten years during this month.

An analysis for the month of October by JM Financial indicates that the Nifty 50 has shown one of the strongest positive price seasonality. In the last 10 years, the index has closed in the green on eight occasions, with an average and median return of 1.7% and 2.5%, respectively.

Seasonality is the pattern where an index tends to show stronger performance during particular times of the year and weaker performance during others.

The Nifty Mid-cap index has also shown strong seasonality in October, finishing in the positive territory on nine occasions, with an average return of 2.1% and a median return of 2.2%. However, it has outperformed the Nifty 50 index in only five instances, achieving an average outperformance of 0.4%, according to the JM Financial report.

Vinod Nair, Head of Research, Geojit Financial Services believes that the environment for the global equity markets has changed after the US Federal Reserve’s oversized interest rate cut.

“The US markets are likely to remain positive which will be supportive for Indian markets. The second-quarter results will be an important factor for the domestic market after a weak Q1. The earnings growth is expected to come back in Q2 which will drive the market sentiment in October,” Nair said.

He expects consumption, infrastructure, IT and pharma sectors to remain in focus going ahead.

“The consumption and the infrastructure sectors are likely to be in focus going ahead. In consumption, the FMCG sector has started gaining traction. We are positive on the FMCG sector as valuations seem to be below long-term average, food prices are coming down and demand is expected to improve,” Nair said.

The improvement in the US economy is likely to support the domestic IT and pharma companies, while expectations of a rise in government spending may be positive for construction and EPC companies, he added.

Sector Seasonality

For October, JM Financial highlighted that the Bank Nifty, along with the auto, metals, and energy indices, have historically shown gains.

Bank Nifty index has closed in the green on nine occasions with an average and median return of 3.9% and 3.7%, respectively, while other indices closed positively on seven occasions each with an average return in the range of 2.5% - 2.7%.

On the contrary, the Nifty FMCG index remained negative during October, closing in the red on seven occasions with an average and median negative return of 0.6% and 0.5%, respectively.

Sector Relative Performance Versus Nifty

Given the seasonality in monthly returns, JM Financial further analysed the relative performance of a sector over the Nifty 50. In October, Nifty Energy and Nifty PSU Bank indices have outperformed the Nifty 50 on seven occasions each with an average outperformance of 0.9% and 5.7%, respectively.

Meanwhile, Nifty IT has underperformed the benchmark Nifty 50 on eight occasions in October, while Nifty FMCG has shown underperformance over Nifty 50 on seven occasions.

Stocks Seasonality

Canara Bank, Delta Corp, TVS Motor Company, ICICI Bank, NMDC, Power Finance Corporation, Steel Authority of India (SAIL), REC, GMR Airport Infrastructure and Manappuram Finance closed in the green on eight or more occasions with an average positive return of over 8%, JM Financial report showed.

The stocks that closed in the red on seven or more occasions with an average negative return of over 3% included Vodafone Idea, Astral and Biocon.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.