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Nifty well poised to repeat its positive March-April show

In terms of the highest number of positive returns, the auto index topped the charts

, ET Bureau|
Updated: Mar 11, 2019, 07.49 AM IST
ET Intelligence Group: If history is any guide, the risk-reward ratio may be turning favourable for investors to increase their bets on equities in March and April, thanks to a strong positive seasonality effect.

The Nifty 50 has posted positive returns – averaging 6.1 per cent – in March and April in eight of the past 10 years, according to data compiled by IDFC Securities.

The impact of the seasonality during this period is more accentuated in the Nifty Bank index of 12 stocks, the Nifty Midcap 100 and the 16-share Nifty Auto, which outperformed the Nifty 50 index on at least eight occasions in the past 10 years. On the other hand, technology stocks on the Nifty IT index have remained the worst performers.

The average cumulative returns of the Nifty Bank in March and April was the highest among all sectoral indices, followed by the auto and midcap indexes. The average return of the Nifty Bank in March and April was 10.6 per cent in the past decade.

The higher returns of the Nifty Bank suggest that the gains during these two months are primarily boosted by domestic cyclical stocks. Given that financial stocks account for almost one-third of the weight in the Nifty 50, any rally driven by the financials has a multiplier impact on the Nifty Bank’s performance.

In terms of the highest number of positive returns, the auto index topped the charts, posting positive returns in nine out of 10 years. The Nifty Bank, midcap and auto indexes outperformed the Nifty even in the election years of 2009 and 2014.

The Nifty rose over 1.5 per cent in the past week, the best performer in Asia and the only stock index with a positive weekly close, which could be an affirmation of the seasonality trend. Investor interest in midcap stocks has been rekindled, thanks to an attractive valuations. The valuation difference between the Nifty Midcap 100 and the Nifty 50 turned to a discount for the first time since May 2014. The Midcap 100 traded at an 8 per cent discount to the Nifty 50, which is lower than its 10-year average.

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