Market in December: Will the Nifty end flat or see a Santa rally? Here's what top analysts say

After clocking gains for the last two consecutive months, the equity barometer Nifty50 is in the red so far in December.

Nifty jumped more than 5 percent in October and more than 4 percent in November. In December so far, it is about 0.6 percent down.

After hitting an all-time high of 18,887.60, Nifty has been witnessing consolidation because of rich valuation and persisting concerns over rate hikes, recession and geopolitical issues.

So far in the year, the index is up 7.4 percent (as of December 6 closing).

While the headwinds are yet to fade away, investors assess the possibilities of whether the index will end flat or with some significant gains.

Santa rally or flat ending?

Santa rally is a reality and markets tend to rally in the last month of the year. As per brokerage firm Samco Securities, Nifty50 ended on a positive note in December for 80 percent of the times in the last 20 years and December has the highest average monthly returns of 3.2 percent.

“Santa Claus Rally is a popular seasonal phenomenon observed in financial markets worldwide. It is believed that there are two main reasons behind the rally in western markets. First, is the institutional investors withdrawing for year-end closing. Second is the retail investors’ buying due to the spill-over of an optimistic outlook from the festive spirit. Nobody can pinpoint the reasons with certainty. But the fact remains that markets tend to move up in December”, said Apurva Sheth, Head of Market Perspective and Research, Samco Securities.

The market may see a few sessions of strong gains if the US Fed raises the rate at a slower pace in its December 13-14 meet and signals that the magnitude of rate hikes will remain low in the forthcoming meetings.

However, this is unlikely because inflation is still at uncomfortable levels and stronger-than-expected job and wage growth data of November in the US indicate that the economy is still resilient. The US Fed may have reasons and enough comfort to continue raising rates aggressively.

"Santa rally this year began late October and December may not see a similar uptrend except perhaps in the last few sessions. As Nifty is not too far from 19,000, there is a good chance that we may reach that level in December, but the index may not go far," said Deepak Jasani, Head of Retail Research, HDFC Securities.

Anmol Das, Head of Research, Teji Mandi sees a very high chance that the Nifty could breach the 19,000 mark in December or the coming months as he believes healthy economic stats and robust earnings growth posted by corporates, are making up a very strong case for the market to demand higher valuations and rallying to newer highs.

Swapnil Shah, Director of Research at Stoxbox, also expects the market to cross the 19,000 level in December, but he observes there are some initial signs of tiredness in certain pockets of the market even though the broad outlook for the market looks positive as of now.

Analysts are positive about the domestic market due to healthy economic indicators.

"We believe that in long term, India would see a multi-year economic up-cycle led by strong macros, diminishing impact of Covid and various government initiatives in terms of schemes like PLI, localisation, and grey list for import of critical items going forward. We expect improving demand situation, gradual recovery in the rural economy, inflation peak out and potential earning upgrade in coming quarters may support the market in December," said Mitul Shah - Head of Research at Reliance Securities.

He expects the market to see a new high in December crossing the 19,000 level.

Osho Krishan, Senior Analyst - Technical & Derivative Research, Angel One observed that on the technical front, the chart structure construes a positive development, with the indices being in a cycle of higher highs – higher lows.

"Overall, the sentiment is upbeat, and till the time the 18,500 level is withheld, there is no sign of worry in the market. On the higher end, the lifetime high zone of 18,890-odd is expected to provide some resistance in the comparable period. But, looking at the strength in the rally, we might end up the year on a happy note," said Krishan.

"The technical structure construes a positive build-up in the Indian equity space, and the global relief is expected to provide the much-needed impetus in our market. It is a matter of time before we may witness a fresh high by the year-end. As mentioned before, the cycle of higher highs – higher lows is strictly inherent in the current scenario. Hence, we remain sanguine to enter the new year with fresh highs," said Krishan.

What sectors should you bet on?

As per Jasani, BFSI, cement, and FMCG are some sectors that could do well in December and one can consider betting on them.

Krishan believes the recent multi-month breakout in the Nifty Midcap50 index affirms the inherent bull trend in the market. So, the new leg of the rally could be seen from the midcap and small-cap counters.

Besides, the banking and financial space, being the major charioteer to uplift the overall market sentiments, could continue its northward journey along with the technology sector, which recently came out of its slumber, Krishan said.

The capital goods sector is also expected to hasten in the next couple of months, clasping hands with the realty and infra sectors, said Krishan.

Shah of Stoxbox believes if the dollar weakens and china reopening happens, metals can be the best outperformers and Tata Steel, JSW, Vedanta, Nalco, Hindalco, Jindal Stainless and JSPL will be key stocks to get benefitted. Banks and cement are India-focussed sectors and they can also see gains.

Das of Teji Mandi pointed out several sectors are seen in demand on different rationales, either from value terms or from growth potential perspectives.

"Prices are looking lucrative for sectors like IT and chemicals which have been valued rich in the past due to their faster growth potential but have been beaten down recently as their margins got hit. However, in the short term, markets may be rooting for some good gains in consumption sector stocks, the likes of QSR segment, jewellery, auto and OEMs, and a more speculative bet on revival in inexpensive IT sector stocks," said Das.

Shah of Reliance Securities believes sectors like engineering and capital goods would continue to be in focus while financials would also continue enjoying positive traction with better credit growth and improvement in asset quality with lower NPAs.

"As the economy is on a revival path and demising impact of Covid on business, we have seen improvement in the business performance of financial sectors across banks and NBFC and financial support services. Moreover, during interest rate upcycles, this sector witnessed net interest margins (NIMs) expansion and improved profitability, which we expect to continue playing out in the next year also," said Shah.

"India is on the cusp of a Capex revival, particularly in the capital goods sector. The government’s support through PLI and China +1 factors would further encourage manufacturing, going ahead. The sectoral outlook appears to be promising from a mid-to-long-term perspective with huge opportunities coming from the various infra projects like the national infrastructure pipeline (NIP) with an estimated ₹111 lakh crore expenditure over the next five years and similar projects," Shah said.

Disclaimer: The views and recommendations given in this article are those of individual analysts and broking firms. These do not represent the views of MintGenie.