Come December, the market catches a chill. Sometime during the first three weeks -- but always before Christmas -- the Sensex takes a pounding. It happened on Tuesday when the index fell by 404 points to close at 12,995. It had earlier slipped by over 400 points on Monday, culminating in a total loss of 977 points in three sessions -- a staggering 7 per cent of investor wealth.
The pattern repeats itself every year. The reason? As fund managers at foreign institutional investment houses (FIIs) prepare to take off for their Christmas holidays, they book profits in heavyweight stocks and cover stocks on which their bets, buy or sell, are open.
“Institutional investors cover their open positions before their vacations. That creates a sell-off,” said Deven Choksey of K.R. Choksey Securities. Local players, who faithfully shadow FII moves, follow suit. And stock figures nose-dive, at least temporarily.
Since 2001, the first fortnight of December has always seen the Sensex drop an average of 1.5 per cent.
The ‘Christmas effect’ occurs irrespective of the way the index has behaved earlier, or moved later. Between December 1 and 24 every year, the Sensex has shed on an average 1.4 to 1.8 per cent of its value.
It looks like investors will be paying for record bonus cheques this year too. Happy firstname.lastname@example.org