Index Back-testing: Nifty may witness a "Santa Claus rally" in December

The Nifty50 fell in 1998, 2008, 2011, and 2014. It suffered its worst fall of 24% in the year 2008, followed by a 6% decline in the year 2011 and 5% decline in 2016.

Dec 04, 2018 03:12 IST IIFL Derivative Desk Raushan Kumar |

Vinay Razdan
To get a sense of Nifty returns in December, we have looked at historical data since Q4CY98 (October-December). History shows that the Nifty has gained in 16 out of 20 years since Q4CY98. Further, the index has gained 5%(on an average). 
 
The Nifty50 fell in the year 1998, 2008, 2011, and 2014. It suffered its worst fall of 24% in the year 2008, followed by a 6% decline in 2011, and 5% decline in 2016.
 
In addition, the index rallied 30% in 2003, followed by 21% upmove in 2007 and 15% gain in 2001.  
 
The table below displays returns for the Nifty from 1998 for the October– December period.  
 

Calendar Year

% Return (Oct-Dec)

1998

-2.00%

1999

5.20%

2000

0.10%

2001

15.40%

2002

13.00%

2003

30.00%

2004

16.00%

2005

14.00%

2006

10.30%

2007

21,5%

2008

-24.00%

2009

2.80%

2010

2.00%

2011

-6.00%

2012

4.00%

2013

10.00%

2014

4.20%

2015

0.10%

2016

-5.00%

2017

7.50%

Average

5.14%


Remarks:
Based on the above back-testing, the expected return for this month is 5-6%, which corresponds to 11,400-11,500 levels. Further, the best bullish derivative strategies that can be used by positional traders are Put hedge, Bull Spread, and Ratio Spread. It is recommended to execute these complex option strategies through a "Derivative expert" only, as it is very important to manage risk against adverse market movements.

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