Will there be a Santa Claus rally this December?

The frontline Sensex has bounced back nearly 1,400 points in two days, staging recovery from one of the worst bear drubbings in months.
 On Thursday, the index ended at 58,461 levels, up 776 points on the BSE, lifted by healthy buying in HDFC twins, RIL, and IT stocks.
 The NSE Nifty, on the other hand, is back above the 17,400-mark.

Meanwhile, in the primary market, ace investor Rakesh Jhunjhunwala-backed Star Health and Allied Insurance’s initial public offer closed with 79% subscription (till 6:30 pm). Among IPOs of more than Rs 5,000-crore plus, Star Health has seen one of the weakest response.
 
According to AK Prabhakar, who is head of research at IDBI Capital, Star Health failed to attract investor interest as the valuation seemed rich and left nothing much on the table for investors.
 
The IPO came at a time when fears of the Omicron Covid variant started. This, he says, may have made investors wary of investing in an insurance-related play.
 
That said, the IPOs of Anand Rathi Wealth and Tega Industries received healthy investor response and have already been fully subscribed.
 
So, will this recovery in the secondary market gain momentum going ahead? Let’s find out.
 
Despite a 3.8 per cent fall in November, the BSE Sensex stands tall with a 19.5 per cent gain at the start of December, 2021. Over the past 11 months, market participants have negotiated many headwinds successfully such as rampant spread of a second Covid wave, boiling crude oil prices, inflationary pressures and fears of policy tightening and withdrawal of government stimulus.
 
Nonetheless, markets did witness minor corrections as and when these headwinds emerged along the way.
 
“Since the current bull-run started from the bottom in March 2020, Indian equities have paused five times (Apr’20, Aug’20, Oct’20, Feb’21 and now since Oct’21) for brief corrections before resuming the subsequent up move”

Data compiled by Vinod Karki of ICICI Securities shows that in the past 18 months, the markets paused for correction five times, with the latest one starting in October 2021.

However, the recovery on the bourses was swift every time, with benchmarks hitting fresh highs. So, should we expect resumption of uptrend this December? 

Historically, the Sensex has delivered a positive return in five out of 10 occasions in the past 10 years, that is, since 2011. These returns ranged between 0.4 per cent and 8.2 per cent, data shows.
 
While developments on the Omicron variant would be key for this month’s market trajectory analysts at Credit Suisse say factors like corporate earnings, interest rate decisions by the US Fed and RBI and the rupee’s trajectory could determine the market trend going ahead.

The brokerage further observes that earnings will be the key driver of equity returns in 2022, and investors should expect high single-digit equity returns next calendar year compared to double-digit returns in 2021.

For Vinod Karki of ICICI Securities, the current phase of correction is another such pause or consolidation before the next surge begins.

On Friday, global cues, FII activity, outcome of OPEC+ meeting, Services PMI data and initial public offers of Tega Industries and Anand Rathi Wealth will guide investor sentiment. < br />

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