As the market enters the final stretch of the year, seasonal Indian stock market trends suggests that the so-called “Santa Rally” is far more than a festive myth.
According to an analysis by Jahol Prajapati, Research Analyst at SAMCO Securities, the phenomenon has shown remarkable consistency in the Indian equity market across the last decade.
However, smallcaps have lead this rally over the years. As per the study, small-cap stocks have been the standout beneficiaries of the Santa Rally, generating an average return of 3.55% with a 100% win rate over the last 10 years.
This means small caps have delivered uninterrupted gains during every Santa window in the observed period, a rare streak that reinforces confidence in small-caps. Midcaps have also participated strongly, delivering an average return of 2.63% alongside a 90% success rate, signalling broad-based risk appetite during this phase. In comparison, the Nifty 100—representing India’s large-cap universe—posted a more modest but still reliable average return of 1.78%.
Prajapati notes that the reliability of the pattern makes the Santa Rally worth watching rather than dismissing.
“The chart reinforces that the Santa Rally is not merely a market myth but a repeatable seasonal pattern,” he said, adding that a combination of factors—year-end fund positioning, calmer global cues and reduced institutional volumes—further magnify its effect.
What Historic Data Shows
Importantly, the downside risk during this period has been minimal. Historical data reveals very limited negative returns, even in comparatively weaker market years, suggesting that the seasonal window tends to offer more upside than downside for investors. This aligns with global observations as well, where year-end market behaviour often leans bullish due to tax-planning flows, sentiment resets and broader risk-on tendencies.
The Santa Claus Rally chart highlights how smallcap, midcap and largecap indices have behaved during the last five trading sessions of December and the first two sessions of January across the past decade.
The strongest year for smallcaps was 2022, when the index surged 7.23%, compared with 4.45% in midcaps and 2.73% in the Nifty 100. In 2021, smallcaps again led with a 5.50% gain, while midcaps rose 3.70% and the Nifty 100 added 4.38%.
Even during the pandemic-hit 2020 period, smallcaps rose 5.34%, midcaps gained 4.28% and largecaps climbed 3.95%. The only year showing notable weakness was 2015, when smallcaps fell 0.63%, though midcaps still rose 1.15% and the Nifty 100 gained 1.12%.
Recent years show continued resilience: in 2024, smallcaps gained 2.39%, midcaps 1.77% and the Nifty 100 1.74%, while in 2023, returns stood at 2.16%, 3.38% and 3.90% respectively. Overall, the data reinforces that smallcaps consistently outperform during this seasonal period, with midcaps and largecaps also witnessing a generally positive bias.
What is a Santa Rally?
The sustained performance across segments indicates that the Santa Claus Rally has structural underpinnings rather than being a random calendar anomaly.
The Santa Claus rally refers to the tendency of stock markets to rise during the last five trading days of December and the first 2 sessions of January. This seasonal pattern is often linked to lower trading volumes, year-end portfolio adjustments by institutions, and improved investor sentiment ahead of the new year. While historic data shows a positive market bias during this window, the Santa Claus rally is generally seen as being driven more by market sentiment.
The sustained performance across segments indicates that the Santa Claus Rally has structural underpinnings rather than being a random calendar anomaly.
The analysis also showed that the Santa Claus Rally performs reliably even during periods of broader market uncertainty, which strengthens its relevance for traders seeking short-term tactical opportunities. Over the past decade, even in years marked by global macro volatility, Indian equities have managed to generate favourable returns during this festive window, suggesting that behavioural and liquidity-driven factors dominate price movement in this brief period.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
