There's no chill in the markets in February

In the last 10 years, Sensex has fallen only once in Feb.

Black Wednesday should have come as no surprise to stock market watchers. In the last two years, January has seen the index losing ground after gains in November and December. In the last 10 years, however, the January effect has been more even: losses in five years and gains in the other five.

If January has a 50:50 record, February looks loaded in favour of the investor. Over the last 10 years, the index has fallen only once in February ""and that was in the post-dotcom year of 2001 when the Bombay Stock Exchange (BSE) Sensex lost 1.84 per cent during the month.

In the five trading days so far this year, the Sensex has lost 2.8 per cent already, after gaining 9.91 per cent in November 2004 and 5.91 per cent in December.

In January 2003, the Sensex declined 3.76 per cent, after registering a gain of 9.48 per cent in November 2002 and 4.6 per cent in December.

In January 2004, the Sensex declined 2.45 per cent after a 2.81 per cent rise in November 2003 and 15.74 per cent in November 2003.

It is worth noting that the January corrections of the last two years came despite huge foreign institutional investor (FII) inflows: Rs 1,066 crore in January 2003, and Rs 2,435 crore in January 2004.

This year, in the first three trading days of January, the FIIs have bought a net Rs 425 crore worth of shares. Seen in the light of the weakness in the index, marketmen expect to see some profit-booking, with an unwinding of positions in January 2005 as well.

Historically, Nifty futures trade either at a discount or on a par to spot. It turns into a premium only in extremely bullish market.

If the Nifty trades at a premium to the spot markets, it has been always followed by a fall in the market. In the first three trading days of the current month, Nifty futures traded at a premium to spot.

In November and December 2004, Nifty futures were more or less traded at a discount to the spot market. The result was a bullish trend in which the Sensex gained a hefty 16.4 per cent in two months.

The other reason why a section of market players takes a bearish view of January is the surge in the number of penny stocks and the marketwide put-call ratio, which is increasing in the favour of put-call. The put-call ratio is currently at 0.47:1, up from 0.25:1 on December 31.