Jan 10, 2008

The Diwali Effect

In my earlier post, "Indian stock market and the Diwali Effect", I had compared the performance of Indian stock market before Diwali and after Diwali. For 10 years from 1997 to 2006, the BSE sensex has performed an average of 0.62% in the preceding 60 days to Diwali and an average of 7.42% after Diwali. That is a significant difference in performance and makes us suspect if Diwali has Market-lifting effect. Let us see how Diwali Effect fared in year 2007, since January 10th marks 60 days after Diwali (November 10th 2007).

For the 60 day period preceding Diwali, BSE sensex soared 21.23%. And for the period of 60 days after Diwali, BSE sensex went up by 8.86%. We cannot clearly say that Diwali Effect made any difference this year. I think the economic expansion in India has reduced the Diwali Effect to the level of noise and Diwali Effect did not matter this year. And the US slowdown might have shrunken the returns of "after Diwali" effect. You might want to note that the performance of S&P 500 for the same periods were 0.14% and -2.27% respectively. As mentioned in the earlier posting, the globalization effect on Indian Market is far more than its domestic influences and hence the Diwali Effect was not very pronounced.

The following chart illustrates how Indian Mutual funds and ETfs performed for the periods before and after Diwali 2007.