Post Diwali is usually better - historically!

Investors worried over the recent bear attack on the bourses can look forward to a rewarding month ahead as returns have been mostly better post-Diwali compared to the one-month period till the festival of wealth.

If this historic trend charted by the market barometer Sensex in the one-month period before and after Diwali holds true this year also, then the market would reclaim yet again its 20,000-point milestone in the next 30 days.

According to an analysis of historic patterns recorded by the Sensex since 2000, the 30-share barometer index has posted an average return of 6.85 % in the one-month period after Diwali. This is about five times the average return of 1.46 % in the one-month period prior to Diwali.

If the Sensex manages to grow by this average, it could achieve a level above 20k, from its current level of 18,907.60 points. The index had first crossed 20,000 levels on October 29 and scaled a peak of 20,238.16 on October 30. However, a subsequent downslide on the bourses has brought the index over 1,500 points away from its lifetime high.

Notwithstanding a fall of 151 points in Muhurat trading and a five-day downslide, the Sensex still managed to record a gain of 3.43 % in the one-month period till Diwali on November 9, 2007.

The post-Diwali one-month period has always given a positive return for Sensex, while it has been negative twice since 2000 in the prior-Diwali period -- in 2005 and 2000. On other five occasions, the Sensex gained between 3.43 % and 11.75 % in one month prior to Diwali.

Besides, the post-Diwali month has recorded a lower return than the pre-Diwali period only once -- in 2003 when Sensex grew by 11.75 per cent in one month before Diwali and by 1.92 % after Diwali.

The market experts believe that the post-Diwali positive trend gets a boost from the fact that Diwali marks the beginning of a new accounting year for market participants and is similar to the way the western world celebrates Christmas, which heralds fresh buying on the bourses.

In 2000, the Sensex lost 10.44 % in one-month till Diwali, but rose 6.43 % in the following 30 days. In 2005, the Sensex dropped 7.99 % pre-Diwali, but rose 12.59 % post Diwali.

Similarly, in 2001, the BSE-barometer rose 4.59 % in the pre-Diwali period, while in the post-30 days it gained 7.72 %.

In 2002, Sensex rose 1.95 % pre-diwali, against a much higher 7.35 % post Diwali. In 2004 and 2006, the one-month returns in pre-Diwali periods were 5.06 % and 3.76 % respectively, while post-Diwali periods gave higher returns of 5.1 % and 6.9 %.