Does leap year spell doom for Nifty, Sensex in 2024?

While there is nothing special about leap years except for correcting the Gregorian calendar to be in sync with Earth’s solar cycle, it has a strange synchronicity with India’s Stock Market which becomes highly volatile during the leap years. It may be Apophenia, that is, the psychological condition of seeing meaningful patterns where none exist, or it may be a real omen, but historical data indicates that the year, 2024, may not move up as smoothly as its predecessor.

The year 2000 witnessed the Dot Com bubble burst with the Nifty index giving a correction of 14.65% in the Year. From the dotcomm peak of over 1800 points in February 2000, Nifty crashed 53% before it made a bottom in September 2001.

Four years forward, the Indian market reacted to the results of the general elections and gave a major thumbs down to the victory of Congress led UPA over BJP led NDA in May 2004. When the NDA government lost the Lok Sabha poll, India’s stock market took the biggest plunge in its 129-year history fearing that the Congress party may undo the then market-friendly policies to appease the leftists, whose support was crucial for a parliamentary majority. On May 17, Nifty tumbled 17.47% while Sensex plunged 15.52%. Eventually, Nifty gained 10.68% in 2004.

The mother of all economic crises, the subprime crisis, hit the USA in 2008. As usual, when the USA caught a cold, India sneezed, and the Nifty underwent a massive correction in which the Index plummeted by 51.79% in 2008.

The Euro Crisis peaked in the year 2012 and impacted the Indian market as well. Between March 2011 and May 2012, more than half of the Euro Zone’s 17 members saw their government collapse or change hands. In three consecutive months of March, April and May 2012, Nifty delivered a return of minus 1.66%, minus 0.9% and minus 6.17 respectively. Finally, in October 2012, EU leaders created the European Stability Mechanism, a permanent bailout fund. Stock indices soared, globally. Nifty ended 2012 with a big positive return of 27.7%.

2015-16 was a tough period for the Indian stock market due to rising NPAs in the Indian banking system. By February 2016 Nifty had cumulatively dropped 26% in just eleven months and then started moving up. In the month of November 2016 when Demonetisation was announced Nifty corrected by 4.65% and eventually Index gave a paltry return of 3% for the year.

The previous leap year, 2020, witnessed a global pandemic of an apocalyptic scale. Volatility reigned supreme. The Nifty fell nearly 38%, from its high of 12,430 in January 2020 to its low point of 7,511 in March 2020. Then, from its low point, the Nifty rose 86%, closing up 15% for the calendar year 2020.

Does leap year spell doom for 2024?

The calendar year 2023 ended with a bang as Nifty skyrocketed to its all-time high in December. The jubilant ending of 2023 may bring up increased volatility in 2024.

Apophenia, or otherwise, one cannot deny that volatility has been the hallmark of leap years since the onset of this millennium.

The year 2024, happens to be the year of the General Elections in India. And it so happens that over three dozen other countries worldwide, including the USA, UK, Taiwan, Pakistan, and Bangladesh, will also go for their national elections this year.

Apart from the apprehensions and anticipations around the electoral mandate, there are other factors at play that add to the concoction of market risks.

There are about 13 crore individual Demat accounts belonging to resident Indian citizens. Adding fuel to the fire is that the Indian Stock Market has become almost totally speculative with more than 99% of daily transaction volumes going into Future & Options trading. IPOs have also been flooding the market of late. On average, 70% of the IPOs every year, since 2020, have been listed at a premium. Both market valuation and retail participation are currently at an unprecedented high.

Retail investors with presumably low understanding of the market and high vulnerability, facilitated by easy-to-use stock-market Apps, egged on by financial influencers on social media, and seduced by the ease of acquiring non-collateralised personal loans, are thronging the trading floors.

Even while the annualised returns of Nifty for the leap years have been positive most of the times, handling a 15-20% downslide in a single month, or over a few, is not everybody’s cup of tea. Thus, volatility in today’s market, especially of the nose-dive kind, will be much more catastrophic than past events.

Even in the previous leap year, 2020, there were not more than 4.5 crore individual Demat accounts of resident Indians and even fewer in the past. By now, there are about 13 crore such Demat account holders. Juxtapose alongside, the fact that speculative trading almost totally dominates the daily transactions happening in the Stock Market, and the equation spells doom for small players if Nifty goes down.

The Indian Stock Market which has seldom seen a downward slide since 2020 has probably made its participants equate the market with the mythical Philosophers Stone that can turn Lead into Gold. It is possible that this quintessential summer child of the market on high will get hurt in the trading winter-land, the question is, how severely?

However, the readings on the cards are not akin to predicting an immediate fall in the Nifty index. The ominous history of leap years aside, the general elections and the highly speculative nature of the stock market are enough to warrant caution from prudent investors.