Sensex might surpass the all-time closing high of 21,108 reached on November 5 of last year if it were to follow the past trends.
Interestingly, in eight out of last nine calendar years, the Sensex returns have been positive in the second half of the year. Even the returns except for the year 2002 have been in strong double digits, averaging 29.9% absolute returns.
In contrast, three out of the last nine years saw negative returns during the first half of the year. Even the average returns during times of positive returns have been lesser at 16.1% in the first half.
The stock market performance in India as well as that in other emerging markets is increasingly becoming dependent on investments made by foreign investors. And for some reason, foreign institutional investors (FIIs) seem to prefer the second half while investing in India, which in turn is driving domestic equity prices relatively higher.
According to Bloomberg data, in the last nine years, FII investments have always been higher in the second half of the year as compared to the first half. Even in 2008, when they sold about $ 12.9 billion worth of Indian equities, they sold lesser in the second half. On an average, the FII investments in second half has been 2.8 times that of investments made during the first half.
However, it seems that the trend of higher returns in the second half is only discernable in the past decade. If one were to look at data since 1980, there have been 12 occasions during which second half of the year gave negative Sensex returns. In other words, only 63% of the times an investor could have made money by investing in the second half of the year. But in the last ten years, success rate was higher at 80%.