Financial Market

Historical ties between market crashes and leap years: what lies ahead for 2024? – Market News

As the financial world steps into the leap year 2024, market analysts are taking note of historical patterns that suggest a degree of caution. While there is no inherent fundamental reason for the stock market to follow a particular trajectory during a leap year, past seasons have witnessed notable crashes, making investors wary.

The phenomenon of leap years, characterized by an additional day, has historically brought about significant downturns in both Sensex and Nifty. Instances of market turbulence were observed in 1992, 2000, 2008, and notably during the Covid-induced lows of 2020.

An analysis of market performance since 1984 reveals that the average annual returns in all the 10 leap years have been less than 8%. In contrast, non-leap years have shown considerably higher returns, averaging at 23%.

The stock market’s uneasy relationship with leap years traces back to 1992 when the Harshad Mehta scam rattled investor confidence. On April 29, 1992, Sensex experienced a staggering 12.77% drop, marking one of the most severe crashes in Indian market history. Despite closing the year 42% lower from the calendar year’s high, Sensex managed to end with a 37% annual return.

In 2000, global markets, including India, faced a 21% loss due to the dot-com bubble burst in the United States.

The year 2008 witnessed another tumultuous period on Dalal Street as Sensex lost over half of its value amidst the global financial crisis.

Even in 2016, investors navigated a volatile landscape marked by significant events such as demonetization, surgical strikes, and the US elections.

The memory of the Covid-induced crash in 2020 is still fresh for investors. Although the index closed 16% higher by the end of the year, thanks to central banks injecting funds into the market, it was not without heart-wrenching plunges. March 23, 2020, marked a historic day when Sensex hit a lower circuit limit, falling 12.71% in a single day.

Will 2024 be as bloody as other leap years?

The looming question now is whether 2024 will follow the historical trend of leap years’ market challenges. Despite Nifty’s recent record highs, analysts are cautious. Positive outcomes related to rate cuts and Lok Sabha elections are already priced in, leaving little room for safety, according to market experts.

“We anticipate that the level of 21,600, which marked last year’s close, will act as a solid foundational support. Our projections suggest that the market might climb above 24,000 levels before experiencing a corrective phase. Although we predict notable upward movements and corrections, we believe the Nifty will likely exceed 25,000 by the end of December 2025, said Responses by Anirudh Garg, Partner and Fund Manager at Invasset

Kotak Institutional Equities forecasts a modest 1% rise in Nifty by December 2024, while other brokerages project targets reaching up to 23,000. Kotak’s fair value model indicates that the index is currently close to 20% overvalued, adding another layer of caution for investors in the leap year ahead.

Whereas Divam Sharma, Founder and Fund Manager at Green Portfolio says that, We expect Nifty to cross 24000 in 2024. There will be events including the Budget, Elections in India and the US, Rate cut decisions and repercussions from geopolitics to have an impact on the markets. We are seeing an undercurrent from investors demanding equities and this momentum should continue in 2024.

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