Nifty posts negative returns in 6 out of 10 years in Sept; adverse seasonality for FIIs too

Even as Indian markets started the September series on a positive note on Friday, a look into Nifty‘s performance in this month over the last 10 years reveal trends which are skewed in favour of the bears. The 50-stock index has managed positive closing on just four occasions with highest gains recorded in 2019.

The largely bearish trends have been on the back of selling by Foreign Institutional Investors (FIIs) who have offloaded Indian equities on six out of 10 occasions. Meanwhile, domestic institutional investors (DIIs) have been net sellers, just ones holding their ground.

Nifty ended positive in 2014, 2019, 2021 and 2023 with gains of 0.13%, 4.09%, 2.84% and 2%, respectively. For four consecutive times i.e. between 2015 and 2018, Nifty ended negative in September. The biggest loss was recorded in 2018, when it plunged by 6.4% followed by 2% decline in 2016. In 2015 and 2017, the fall was 0.3% and 1.3%, respectively.

The NIIs were net sellers in 2015 (- Rs 6,475.15 crore), 2017 (- Rs 11,392.27 crore), 2018 (- Rs 10,824.7 crore), 2020 (- Rs 7782.53 crore), 2022 (- Rs -7,623.66 crore) and 2023 (-Rs 14,767.5 crore).

A JM Financial note called this trend a “negative price seasonality” in September.

September 2023 was the year of highest FII outflows and yet the market managed to end with 2% gains as the DIIs threw their weight around with inflows of Rs 20,312.64 crore. DIIs have remained bullish on local equities in September for nine consecutive years and the last time they were sellers was in 2014. The highest DII buying was seen in 2017 at Rs 21,025.53 crore while the lowest was in 2020 at Rs 110 crore.In years when FIIs were net sellers, DIIs generally showed net positive investments and this inverse relationship highlights how DIIs stepped-in to buy during periods when foreign investors were withdrawing, helping to stabilise the markets.

However, Nifty’s September performance becomes a match over a 12-year period with 6 instances of positive closing. In 2012 and 2013, Nifty ended with 8.4% and 4.8% uptick.

The JM note also highlighted the performance of Nifty Midcap index where six positive closes were reported though the average returns of 10 years remained at zero.

Sectorally, Nifty Auto managed a positive closing on 7 occasions with average returns of 0.3%.

Indices that ended in the red 7 times or more include Nifty Metal, PSU Banks and Real Estate with average negative returns of 2.3%, 3.2% and 0.2%, respectively, JM note revealed.

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