Since 2011, there have been only two occasions when Sensex has given negative returns in the festive month of October, which also marks the beginning of Q3 and the second half of the financial year.
In the last 11 years, the index has given returns of up to 9.2% in October months with 2013 and 2011 being the best performers.
In the last 3 years, October months have given returns of 3.78%, 4% and 0.3%.
2012 and 2018 have faced the two worst Octobers in recent years with losses of 1.37% and 4.9%, respectively.
The month of September, on the other hand, has been terrible for equity investors most of the time as the index has given positive returns on only 4 such occasions.
A comparative analysis of monthly returns since 2011 shows that October has the highest probability of giving positive returns.
Amid worries that an aggressive push by the Fed to raise borrowing costs could throw the economy into a downturn, the Dow Jones has fallen around 20% on a year-to-date basis in 2022 while the Sensex is down only around 3% YTD.
Independent market expert Sandip Sabharwal, however, says that October could be tough for the markets as there is too much of a sentiment of buy-on-dips in India. “No one is looking to sell and as the sentiment sours, some of the short-term traders and investors might want to bail out and that will give better opportunities,” he said.
For global brokerage firm CLSA, low margin of safety and mean reversion are derating risks for Indian equities. “A simple valuation mean reversion anchored on bond yields indicates fears of 30% downside in the Nifty,” CLSA warned in its India market strategy report.
Morgan Stanley’s equity strategist Ridham Desai said historically, Indian equities have entered bear markets when the US has slipped into recession. “The US interest rate cycle and, thus, the US dollar could continue to be a source of volatility for Indian equities in the coming months due to their negative effect on earnings and BoP (balance of payments),” he said.
As we enter the earnings season in October, profit margins could also be another source of concern for investors. At the 98-99th percentile, India’s relative valuation to emerging markets and Asia ex-Japan is near record highs.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)