Case of good hope: July’s been positive 8/9 years

The downtrend in the stock market, caused by high inflation and weak global cues, might just reverse in July, going by data stretching back to the dotcom bust.

Indian equities have given positive returns in July in eight out of nine years since the stock markets tanked with highly valued technology stocks in 2001.

Also, data from 2002 onwards show the market has never fallen for more than three months in a row, not even in the midst of the financial crises.

This year, the markets have fallen in April, May and June, shedding over 5% since the beginning of the new financial year, largely on account of high inflation in India and fears that Greece would default on its debt payments.

Prospects for July are looking better, according to experts.

“If the market falls for three months consecutively, we tend to see one month of recovery. The momentum with which the market has recovered in recent sessions, we would expect Nifty to reach a level of 5600 at least,” said Shrikant Chauhan, senior vice-president at Kotak Securities.

Swati Kulkarni, vice-president and fund manager at UTI Asset Management Company, concurred. “Downside is limited from here, though inflation and interest rates would continue to be watched. Policy measures from the government are a positive.”

Previously, the Nifty had rebounded after a consistent three-month negative performance in 2002, 2004 and 2008.

The Sensex was in the red for three consecutive months once in 2002 and 2004, and twice in 2008, rebounding immediately after in each case.

A correction in commodities would also be positive, feel experts.
“If the commodity correction persists, it would be a positive for emerging markets since margins will improve,” said Kulkarni.

A barrel of Brent crude was trading at 107.94 at 9.30 pm IST on Tuesday, having fallen 10.29% in June.

“A technical analysis of Brent crude prices suggests that we could be headed to levels of $90-92 per barrel. This would also have a strong positive impact on emerging market economies such as India,” said Chauhan.

Since 2002, the Nifty has given an average return of 3.3% in July while the Sensex has given an average return of 3.8% during the same month.