What exactly is the Santa Claus Rally and why does it matter to the markets?

The Santa Claus Rally may sound like the stuff of Red Nosed Reindeers, sleigh rides and armies of elves ignoring the Working Time Directive in the run up to Christmas; but the impact of the Rally on financial markets is all too real.

And whether it’s because US Corporations conventionally operate to a 31st December year end or because a healthy chunk of end of year bonuses end up being used to buy shares or simply because market participants are either caught up in the festive spirit or, if they are of the Scrooge contingent, are away on holiday (all four have been seriously suggested over the years), there really is a marked hardening in stock prices around the World in the few weeks between Christmas and New Year’s Day.

On a more prosaic note it could have just as much to do with the so-called “January Effect”: stock prices commonly rise in January, so it would make sense to buy before prices go up.

Who knows?

The North Pole must have seemed a very long way off to the small group of cotton traders who began to meet under banyan trees outside the town hall of what was then Bombay, now Mumbai, in the mid-nineteenth century. This small gathering of men (and they were all men of course), grew in time to become the Bombay Stock Exchange Asia’s oldest financial bourse; and the current custodians of that venerable institution have had their eyes on what they want for Christmas for several months now.

In September the Bombay Stock Exchange announced its intention to become a publicly listed company (the first Exchange on the subcontinent to do so), hoping in the process to raise up to $195 Million by way of an IPO, brought to the market under the auspices of the Securities and Exchange Board of India (“SEBI”).

By the end of September sources close to the Bombay Stock Exchange were sounding nothing but positive: “Since we have filed, we have not received any communication seeking any clarification from SEBI; listing, it believes, can only improve transparency.”

Well, that was two months ago now and there is still no sign of SEBI issuing the required regulatory approval that will fire the starting pistol for a formal listing; and having said back in September that the IPO would get away by Christmas at the latest, just in time for the Sana Claus Rally to give a lift to the new shares, it now seems that nothing substantial is likely to happen until after the first quarter of 2017; which is all  something of a surprise given SEBI had apparently issued an “in principle” approval for the Offering as long ago as March of this year (a full twelve months before the current expected issue date).

Perhaps predictably in that light, some shareholders in the Exchange are starting to lose their patience; notably the Singapore Stock Exchange which has now divested itself of its stake in the Exchange; and some of the other major shareholders are diluting.

But it is not all doom and gloom. Other top shareholders in the Exchange are holding their nerve, including Deutsche Bourse, which, far from diluting its stake is now widely expected to raise its holding in the short term. And one can, of course, draw continued comfort from the presence of the likes of Caldwell India Holdings, Atticus Mauritius and Acacia Banyan Partners on the shareholders’ register.

So the message would seem to be to hold firm.

We may just about be in time for the Santa Claus Rally in Christmas 2017.

Red Ribbon CEO, Suchit Punnose said:

As the article states, the Bombay Stock Exchange is the oldest Financial Bourse in Asia; and it will be the first exchange in India to be made subject to an IPO; so to a very large extent this is something of a showcase offering for Financial Markets on the subcontinent. The Placing is not something that should be allowed to do anything other than to demonstrate India’s Financial Markets, Financial Professionals and Regulators working together at their very best.

It is slightly sad that the process is taking longer than expected. I don’t know the reasons for that but I am more anxious that it should all be done properly, rather than quickly. The fact Deutsche Bourse is continuing its support (indeed increasing it) leads me to believe they take the same view.