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Nifty’s average return over the last 10 years is just 0.38%, and it has closed positively on only 3 occasions in that period. In contrast, Nifty IT’s average return during the same period stands at 2.1%.
Nifty IT has been the best performer in terms of positive finishes in January, ending the month on a high 8 times. Its highest return of 11% came in 2018, while the lowest, at -10%, occurred in 2022.
IT stocks' weight is the second highest in Nifty at 14%, and their performance could play a decisive role in how Nifty finishes the month this time.
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Nifty drags of the last 10 years
Nifty’s insipid show in January can be attributed to the lack of firepower shown by major contributors such as banks, pharma, and FMCG.
Banks & financial services, which collectively hold 34% weight in Nifty, have underperformed the index. Nifty Bank’s average return over the last 10 years stands at 0.32%, while Nifty Financial Services’ average return is 0.05%.
In the last 10 years, Nifty Bank has finished January positively on five occasions, with its highest return of 7.2% in January. However, it recorded an 8.3% decline in 2016, its worst performance during this period. In 2024, the 12-stock index closed down by 4.8% month-on-month.
The FMCG (8%) and healthcare (4.2%) sectors, which also enjoy considerable weight in Nifty, have been laggards, with average returns of -0.28% and -0.54%, respectively.
Nifty FMCG and Nifty Pharma managed to close in the green on 6, 6, and 3 occasions.
Energy and auto stocks have outperformed the Nifty during this period, with returns of 1.16% and 1.4%, respectively. Both closed in the green on six occasions but lacked the necessary firepower to improve Nifty’s prospects.
Nifty Energy’s sharpest rise was in 2024 and 2023, at 9.80% and 8.34%, respectively.
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The highest 10-year average returns are from Nifty Realty at 2.4%, but it has managed only four positive closings. Its outperformance over its peers can be attributed to lofty gains in each of those four occasions.
In 2015, Nifty Realty's returns stood at 16.59%, followed by 8.59%, 10.89%, and 9.34% in 2017, 2020, and 2020, respectively.
Nifty PSU Bank, Nifty Metal, and Nifty Media are among the top laggards with average negative returns of -0.36%, -2.20%, and -2.79%, respectively.
While Nifty Private Bank was launched in 2016, Nifty Oil & Gas, Nifty Consumer Durable, and Nifty Healthcare were launched in 2020. Their average returns in January since their launch are 0.58%, 2.8%, -0.93%, and -3%, respectively.
5 Factors That Could Decide January’s Fate This Time
1. Q3 Earnings
January's sectoral performance will be driven by the quarterly earnings of listed companies. The season kicks off on January 9, Thursday, with the announcement of the October-December quarter results by Tata Consultancy Services (TCS).
Traditionally, Q3 has shown weak earnings seasonality, with the second-lowest year-over-year growth in Profit After Tax (PAT) and the second-lowest absolute PAT. This has contributed to subdued investor sentiment, according to Jimeet Modi's analysis.
The Founder and CEO of Samco highlighted the "January jinx," a trend dating back to 2001. "January has averaged -0.59% returns, making it the second-worst month after February. Out of 24 instances, 15 have delivered negative returns—the highest among all months," he said.
2. FII Action
Another important trigger could be the trends shown by foreign institutional investors (FIIs). In the first two days of this year, they have been net sellers of domestic equities to the tune of Rs 5,949 crore. Over the last 10 years, FIIs have been net sellers six times in January, with the highest selling in 2022 at Rs 33,303 crore.
3. Donald Trump
Donald Trump will take over as the US President on January 20, 2025, with 10 trading sessions still to go. The Street expects disruptions related to tariffs, which could affect global markets, including India.
4. Fed FOMC
The US Federal Reserve will hold its two-day monetary policy meeting on January 28 and 29, followed by the announcement of the outcome. The Fed's commentary on inflation and the US economy will be closely watched by D-Street.
5. Union Budget 2025
The Union government will present its annual budget for the financial year 2025-26 (April-June) on February 1. Sectors like defense, railways, agriculture, infrastructure, and real estate are expected to remain in focus leading up to the budget.
Also Read: Sensex vs gold: Which one will hit 1,00,000 milestone first?
Expert Take
Angel One alerts investors to remain cautious of domestic equity markets, not ruling out a correction. However, it sees 2025 offering opportunities to add equity for double-digit returns in the next 3 years.
"For now, we think defensives and private banks offer the sweet spot in investing. Amidst all the big themes, earnings will play a key role. Expectations for earnings have already fallen from double digits to mid-single digits for FY25. Earnings revival in 2025 will be important for domestic equity performance," it said.
“January typically tends to be a slower month according to the past decade’s seasonality, with Nifty often closing in the red 70% of the time. Nifty Bank has shown mixed performance, with a 50% chance of closing on either side. We believe that Nifty will struggle to surpass the 24,350 mark and will likely remain a sell-on-rally until strong FII participation returns,” Nuvama said in a note.
(Data Inputs From Ritesh Presswala)
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
