Santa Rally: Will Santa Claus visit Dalal Street this year?

SYNOPSIS: Santa Claus Rally refers to year-end market optimism. While common in Western markets, India shows mixed December trends, with analysts divided amid global cues, earnings visibility, and valuation concerns.

This year, markets have swung between red and green, taking investors on an emotional rollercoaster ride. From once waiting for Santa’s gifts to now waiting for the Santa Claus Rally, we’ve all grown up. But, before we go into more details, let’s first understand what this much-talked-about rally actually means.

What Is the Santa Claus Rally?

The Santa Claus Rally refers to the phenomenon where the stock market jumps in value during the last week of December and into the first two trading days of the new year. The concept originated in the US in the early 1970s and has since become a popular seasonal market narrative.

So why does this happen around year-end? Typically, investor sentiment turns optimistic during this period. Many market participants buy stocks in anticipation of higher prices, hoping to ride a positive momentum into the new year.

In Western markets, the rally is typically supported by several factors. Large institutional investors tend to step back due to year-end book closures, reducing selling pressure. At the same time, retail investors step in, driven by festive cheer and optimism.

Adding to this is the well-known “January effect” – the belief that markets tend to rise in January as investors position themselves for the year ahead. Additionally, portfolio “window dressing” by institutional investors before reporting deadlines can lead to increased buying in large, liquid stocks.

Does India See a Santa Claus Rally?

Now, enough about the West – let’s talk about India. Unlike US markets, the Santa Claus Rally isn’t a very pronounced or predictable phenomenon in India. However, historical data suggests that it does exist, albeit inconsistently.

We indeed can “expect” a Santa Claus rally in India too. Since calendar year 2001, the Nifty 50 has delivered positive returns in December in 17 out of 24 years, while the BSE Sensex has risen in 16 of those 24 years. In the broader markets, the trend appears slightly stronger, with the Nifty Midcap index advancing in 18 out of 24 years and the Nifty Smallcap index rising in 17 out of the last 20 years.

Looking at the past five years, Nifty 50 ended December in the green three times – rising 7.81 percent in 2020, 2.18 percent in 2021, and 7.94 percent in 2023. In contrast, the index declined by 3.48 percent in 2022 and fell by 2 percent in 2024.

Overall, data shows that in six of the last ten calendar years, the Nifty has posted gains in December. This suggests that while India does witness a mild Santa Claus Rally at times, the signals have remained mixed.

What Are Analysts Saying?

Indian benchmark indices – the BSE Sensex and NSE Nifty – touched record highs of 86,159.02 and 26,325.8, respectively, on Monday, 1st December, after navigating a volatile calendar year 2025.

According to analysts, the stage could be set for a Santa Claus Rally in December, with the momentum potentially extending into parts of calendar year 2026, albeit with intermittent corrections and pullbacks.

From a strategy perspective, many experts recommend sticking with large-cap stocks until there is greater clarity on key global and domestic triggers, including US tariff policies towards India, geopolitical developments, and visibility on corporate earnings growth.

Mixed Views From Market Experts

Analyst opinions, however, remain divided. Some believe selective exposure to mid- and small-cap stocks could also make sense, provided earnings visibility and valuations remain supportive. According to an analyst at Geojit Investments, December often sees investors recalibrating expectations for the coming year.

Optimism around a potentially stronger CY26, easing geopolitical tensions, moderation in global trade disputes, prospects of a US-India trade deal, and possible interest rate cuts by the RBI and the US Federal Reserve have all helped lift sentiment.

On the other hand, a few analysts caution against relying too heavily on historical one-month trends to predict future market performance. They point out that December in India follows the festive season and precedes the final quarter of the financial year, which can naturally improve sentiment. However, global developments, commodity price movements, regulatory actions, central bank decisions, foreign fund flows, and market valuations continue to play a decisive role.

So, will Santa make a stop at Dalal Street this year? As always, only time and the markets will tell.

Written by Shivani Singh

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