September seasonality favours bears: Nifty down 6 of last 10 years; where to invest now?

September seasonality leans bearish, with the Nifty closing lower in 6 of the last 10 years, largely driven by foreign capital outflows as FIIs turned net sellers on as many occasions.

The 50-stock index settled lower in 2015, 2016, 2017, 2018, 2020, and 2022. The sharpest fall of 6.4% was recorded in 2018, followed by a 3.7% decline in 2022. In 2016, Nifty fell nearly 2%, while 2015 saw a modest 0.3% decrease. In 2019, 2021, 2023, and 2024, Nifty closed positive, rising by 4%, 2.8%, 2%, and 2.3%, respectively.

FII/DII data

FIIs booked gains and were net sellers on six occasions in September, while they infused funds on four other occasions. They were net sellers in 2015 (-Rs 6,475.15 crore), 2017 (-Rs 11,392.27 crore), 2018 (-Rs 10,824.7 crore), 2020 (-Rs 7,782.53 crore), 2022 (-Rs 7,623.66 crore), and 2023 (-Rs 14,767.5 crore). Meanwhile, FIIs were net buyers in 2016 (Rs 10,443.25 crore), 2019 (Rs 7,547.89 crore), 2021 (Rs 13,153.69 crore), and 2024 (Rs 57,723.64 crore).
Notwithstanding the FII sentiment, domestic institutional investors (DIIs) have been net buyers in September every year. The highest buying was recorded in 2024, when DIIs purchased equities worth Rs 31,860 crore. The next strongest buying months were in 2017 and 2014, with DIIs acquiring shares worth Rs 21,026 crore and Rs 14,220 crore, respectively. In 2018 and 2019, DIIs bought shares valued at nearly Rs 12,500 crore each (2019: Rs 12,490.81 crore).

The September series started on Friday, August 29, with the Nifty closing 0.3% lower at 24,426.85. The Nifty index fell 1.7% during August amid heightened FII selling, as Rs 34,993 crore worth of Indian equities were offloaded.“FIIs were unequivocally bearish — net sellers of Rs 38,590 crore in cash — and maintained a negative bias in index futures, while being marginal buyers in stock futures. Despite the index weakness, India VIX hovered near 52-week lows, underscoring complacency or lack of aggressive downside hedging,” Yes Securities noted.Taking an 18-year view, Sudeep Shah – Vice President and Head of Technical and Derivative Research Desk at SBI Securities observed that Nifty’s performance in September has been mixed. On 10 occasions, the index closed positive with an average gain of 6.78%, while on 8 occasions, it ended negative with an average loss of 2.65%. The average return for the Nifty in September has been 2.6%. Additionally, September has consistently shown an average volatility of 9% for the Nifty index, Shah said.

Based on rollover data from August, potential outperforming sectors could include automobiles, consumer durables, and FMCG. Potential underperforming sectors are likely to be private banks, financial services, defense, oil & gas, media, PSE, CPSE, capital markets, and realty, the VP said.

Technical view

Currently, the index is trading below its 20-, 50-, and 100-day EMA levels, and the daily RSI is below its 9-day average, nearing a slip below the 40 mark, SBI Securities analyst noted. “Going ahead, the 200-day EMA zone of 24,300–24,250 will act as an important support for the index. Any sustainable move below 24,250 may lead to further correction toward the 24,000 level,” he warned.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)