A positive March quarter is positive for stocks

The market has risen in the March quarter. Based on past patterns, what should we expect? Here is a study of the historical behaviour of the markets over the past 25 years

After witnessing a few jitters in the month of January, stock markets have rebounded well to end the March quarter on a positive note. The Sensex ended the March quarter with a marginal rise over the December quarter of last year. How does this performance augur for the June quarter and even the rest of the year?

Moneylife took a look at the historical data, searching for some clues in the market patterns. We started from the year 1986. Over these years, the Sensex has ended the March quarter in positive territory 13 times (excluding this year).

Out of these 13 occasions, the market has continued its upward momentum into the June quarter as many as nine times. That translates into a high 70% probability of the June quarter ending in positive territory. Indeed, the bulls have been on a roll for the past seven consecutive weeks and are not slowing down. However, it means that valuations have run up substantially now. The market is now trading at a high P/E of 19 based on the expected March quarter results.

The June quarter trend over the last eight years shows an interesting pattern. Since 2002, the Sensex has ended the June quarter in the opposite direction every year. Last year, it ended positive. Will the alternating trend continue?  

The bulls have a lot to cheer about—strong corporate performance supported by strong FII inflows from countries with low interest rates may just turn out to be the booster dose for the markets as we head into the next fiscal year. Unless the Sensex gets weighed down by the high valuation and sudden global shocks, it may proceed to turn in a solid performance in the coming year.

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