Sensex Surges: Will India See a Santa Rally?

The Indian stock market has seen a sharp two-day surge, raising hopes of a year-end rally. The Sensex has risen almost 1,000 points, and the Nifty 50 has reclaimed the 26,100 mark, sparking speculation about a potential Santa Claus Rally.

What is a Santa Claus Rally?

A Santa Claus Rally is a seasonal stock market pattern where prices tend to rise amid improved sentiment, lighter volumes, and year-end positioning. Analysts believe that while talks of a Santa Rally are gaining momentum, the possibility of a broad-based market surge looks dim.

Analyst Views

Kunal Kamble, Sr. Technical Research Analyst at Bonanza, said that the possibility of a Santa Rally during the year-end cannot be ruled out, but it may remain selective and range-bound rather than a sharp one-sided move. Harshal Dasani, Business Head at INVAsset PMS, echoed similar views, stating that the Indian market setup is more nuanced than a simple seasonal surge.

Historical Behavior

Looking at historical behavior, Nifty has often seen a sharp correction around 21st December, followed by stabilization. However, in the current setup, such a sharp correction has not yet occurred. Instead, Nifty witnessed mild profit booking after making an all-time high, indicating healthy consolidation rather than distribution.

Key Factors

• FII activity has moderated, with net open positions around – ₹13,964 crore.
• Historically, December has been dominated by DII and retail participation, which generally carries a bullish bias due to year-end optimism and portfolio adjustments.
• The lack of progress on the India-US trade deal remains a key overhang and has kept the Indian stock market in a consolidation phase.

Sensex and Nifty Outlook

Anshul Jain, Head of Research at Lakshmishree, commented on the Sensex outlook, stating that the weekly chart is shaping a powerful 65-week cup and handle formation, with the Santa rally pushing the index right up to the neckline near 85,978. Kunal Kamble commented on Nifty 50, saying that the index is clearly respecting the 25,720 level, and the bias remains positive as long as Nifty sustains above the near-term support at 25,995.

India VIX is currently trading near its lower support zone, indicating complacency. Such low volatility environments often precede abrupt directional moves, making the near-term setup more favorable for option buyers.