Trading and investing are filled with thousands of strategies, each one offering a distinct approach to making profits. Many traders gravitate toward capitalising on trending sectors or stocks, riding the wave of positive momentum. However, there is a less conventional strategy that remains underutilised yet holds significant potential – accumulating assets during a sector’s downturn and patiently holding them for future gains.
This strategy involves a contrarian approach, where investors choose to go against market sentiment, seeing value in moments of market weakness rather than rushing to invest when everything is trending upwards.
One of the strategies that this contrarian approach can be applied – by using Seasonality Analysis on the Nifty FMCG Index.
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Seasonality analysis is a technique used by traders and investors to identify recurring patterns in the stock market, often linked to specific months, quarters, or seasons of the year. The core idea behind seasonality analysis is that market performance during certain times of the year can exhibit consistent trends, either positively or negatively.
Seasonality analysis: The Nifty FMCG Index
The Nifty FMCG (Fast Moving Consumer Goods) Index is a key benchmark for companies within the FMCG sector in India.
Source: RZone, Definedge Securities
According to seasonality analysis, February has historically been the worst-performing month for the Nifty FMCG Index. In fact, over the past 14 years, February has posted an average loss of 1.23%, with only four positive closes against ten negative closes. This performance makes February the least favourable month for the index, which aligns with a key principle of contrarian investing – accumulating when others are retreating.
This strategy hinges on the fact that after February’s downturn, the following five months typically see significant recovery. The Nifty FMCG Index has exhibited a strong performance in the months following February, with March, April, May, June, and July consistently posting positive returns.
For instance, March has shown an average gain of 2.89%, followed by 2.67% in April, 2.40% in May, 1.85% in June, and a solid 3.45% in July. These months boast a strike rate of over 70%, suggesting a high probability of favourable returns after February’s negative performance.
To reinforce the validity of this contrarian strategy,
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