Nifty January returns: Should you expect a trend reversal in 2023?

After ushering in the new year 2023, 50-stock index Nifty managed to give positive return on seventh year in a row. However, there was a catch in its December 2022 trade pattern. Generally, Nifty 50 index gives positive return to its investors in December and negative return in the month of January. In last 13 out of 20 years trade pattern, Nifty has delivered negative return and hence market is full of speculations whether there would be trend reversal this month and Nifty would be able to break its January jinx or not.

Key triggers for Nifty

Speaking on whether Nifty would be able to break its January jinx, Chandan Taparia, Derivative & Technical Analyst at Motilal Oswal said, "It's true that Nifty has a record of ending in negative territory in the month of January but we need to remember some triggers after ushering into the new year 2023 and those triggers include last full budget of the current central government, which is expected to be a common man friendly budget. Apart from this, in the month of December 2022, market went through the sell off heat only when major indices of the Dalal Street climbed to life-time highs. In the month of December, sell off trigger had come from the rising Covid-19 cases in China that renewed the fear of fresh Covid wave. However, in India, new Covid cases have declined, which is a good signal for market bulls."

Chandan Taparia of Motilal Oswal further added that the Reserve Bank of India (RBI) has given positive outlook for the Indian PSU banks that is going to work as a big trigger for state-owned banks listed at Nifty. The Motilal Oswal expert further added that FIIs have a habit of squaring off their position before going for a long break from the markets ahead of Christmas. So, once they come back to the markets, they may look at banking, financial, auto and metal stocks that are available at discounted price in Indian markets.

Stock market strategy for bulls

Chandan Taparia advised Dalal Street bulls to maintain 'buy on dips' strategy and avoid taking any short position as probability of trend reversal in January is quite high. However, he also advised investors to keep an eye on Covid status in China and other parts of the world as any negative development on this front may trigger fresh sell off in the global equity market including Dalal Street.

Santosh Meena, Head of Research at Swastika Investmart said, "Historically, January is one of the worst months for the Nifty, and December is one of the best. This time, the tendency appears to be changing because December saw a significant amount of profit booking, which raises the likelihood that January will bring gains. Normally, January starts off on a high note with heavy long buildups and significant rollovers, but this year, the market is light enough to move higher. Global cues are still unstable, though. I think investors should concentrate on the infrastructure and metals industries in January. Given that foreign investors find China's valuations to be appealing, the Chinese government may also provide some economic stimulation. The Nifty Metal Index is seeing a multi-month breakout technically."

The Swastika Investmart experts said that upcoming budget 2023 would be the last full budget of the Modi 2.0 government. Therefore we can anticipate a big focus on infrastructure investment.

"We can anticipate a catch-up rally in 2023 because the infrastructure sector missed the 2022 rally of domestic economy-facing industries," Santosh Meena said.

What Nifty chart pattern suggests?

Chinmay Barve, Head — Technical and Derivative Research at Profitmart Securities said, "The index has corrected consistently for three weeks in December 2022 mirroring its own historical performance of September 2022 where it saw a correction for consecutive three weeks. Since July 2022, the Nifty has been broadly maintaining above its 5 weeks exponential moving average and the greater separation between Nifty’s 5 weeks and 26 weeks exponential moving averages seem to suggest that the medium term trend of the index is still up."

Profitmart Securities expert went on to add, "Chart structure of the Nifty looks positive on broader time frame technical charts like weekly and monthly. In the absence of any major economic and geopolitical shocks Nifty is expected to gradually head towards an all-time high of 18,900 in the medium term. On the lower side, key short term technical support for the Nifty seem to be placed around 17,700 to 17,800 zones and medium term support around 17,300 to 17,400 zones." He said that sectors like PSU Bank, Pvt Bank, FMCG, Metals and Financial Services are likely to remain outperformers over the medium term.

Nifty ended around 3 per cent higher in 2022, extending its YoY rally for seventh year in a row. It has been ending positive since 2016 and despite huge sell off in December. it managed to remain in the positive zone by near 3 per cent on year-to-year basis. 30-stock index BSE Sensex surged 2.80 per cent. However, Nifty Bank index outperformed key benchmark indices in 2022 by a huge margin as the banking index surged to the tune of 21 per cent in the year gone by.

Historically, Nifty has ended in negative zone on last 13 out of 20 years. It could manage to end in positive territory in 2006, 2007, 2012, 2013, 2015, 2017 and 2018 only. The 50-stock index logged its highest 12.50 per cent rise in January 2012 whereas its biggest loss in the month of January in last 20 years was in 2008, when it lost over 16 per cent due to global slowdown caused by subprime loan crisis.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.