Nov 5, 2007

Indian stock market and the Diwali Effect

Just like western world celebrates Christmas, the Indian subcontinent celebrates Deepavali or Diwali. Diwali not only is a festival of lights, but also marks the beginning of new fiscal year for many businesses in India. Besides, Diwali also marks a busy holiday shopping season for Indians. For these reasons, it may be interesting to watch the performance of Indian stock market index with respect to Diwali season. The three day festival of Diwali this year is celebrated from November 8th through 10th.

I considered four cases around Diwali event; 30 days, 60 days preceding Diwali and 30 days, 60 days after Diwali. I used BSE sensex of Indian market, which is a market capitalization weighted index of 30 large and well established companies. The table below shows the performance of BSE sensex before and after Diwali shopping season for the previous 10 years.

As you can see from the average (arithmetic) performances, the index has comparatively done better after the Diwali season than before. One of the caveats with this point is that BSE sensex has only 30 stocks and may not be broad enough to generalize.

The Chart below shows how some of the main Indian ETFs and Mutual funds have performed YTD. Although all the funds have done splendidly this year, the US slowdown can have a dent on BSE sensex too.

Diwali seems to have positive effect on Indian stock markets, but I think, this year the global growth story has a much bigger impetus to drive Indian markets higher than the "Diwali Effect". But the Diwali Effect can certainly add to the growth story in Indian markets.