Dashain Effect in NEPSE: What happens before and after the holidays?

Holiday Effect: The tendency for a stock market to gain on the final trading day before an exchange-mandated long weekend or holiday such as Labor Day or Christmas.

We do not have a long holiday for Christmas in Nepal. However, the longest break that happens in NEPSE is during Dashain. This year also, NEPSE will open on Kartik 06 for the last day before the Dashain holidays begin. The exchange will remain closed for five days during the festive occasion.

It is in everybody's interest to try to predict the stock market in the days to come. Particularly, investors might want to know what will happen to the market after the festive season ends and the market resumes. Will investors come to the market with fresh energy and enthusiastic hopes after a well-needed break? Will NEPSE create a new high?

No one knows. Nonetheless, we can look back at history and analyze how the market behaved a few sessions before the holidays and after it.

Disclaimer: Past analysis of any company or index is difficult in NEPSE because of a lack of data.

As primitive as our market is, our data retrieval abilities are even limited. The data in this research is taken from SSPro, a software with an in-depth focus on fundamental and technical analysis. Click here and grab a 10% Dashain discount on the software to make informed investment decisions. 

Sharesasnar analyzed the movement of NEPSE before and after Dashain in the last 9 years. Here's what we found:

1) The market can swing both ways before the holidays

In the last 9 years, NEPSE has gained 5 times in the week before Dashain. Not to be overlooked, it has also lost four times.

What is interesting is that NEPSE was in a bearish phase for the last five years or so. However, in those five years, NEPSE actually gained in the last week before Dashain of each year. It gained in the last four consecutive years.

2) NEPSE tends to lose in the first week after Dashain

The data seems pretty clear on this one. In the last 9 years, NEPSE has lost far more times in the first week after the Dashain holidays than it has gained.

And by a clear margin, it seems. For the first week after Dashain, NEPSE lost every year in the last six years. In the 9 years that we analyzed NEPSE's chart, the index has gained only twice. And that too, way back in time: in the years 2069 and 2070.

3) Well, how is the trend for the three months after the holidays?

The data is undecisive. NEPSE has had a downtrend for 5 times in the last 9 years. Also, the movement in these first three months after the holiday season is more dependent on the dividend announcement and the quarterly reports. Generally, banks, financial institutions, and other companies declare dividends for the previous fiscal year after Dashain/Tihar. The market is very sensitive to dividend announcements. The market sentiment can be overturned by these announcements regardless of the trend of the index.

Furthermore, the first quarterly report of the companies is believed to set the tone for that fiscal year. Companies mostly unveil the quarterly reports in mid-Kartik, which mostly falls after Dashain. Thus, if the reader is reading this article to know what will happen this year, perhaps the quarterly reports might have a higher influence on the general economy, and hence the stock market.

4) The market gains on the last day

In the 9 years that we analyzed, NEPSE has gained 7 times in the last day before the Dashain holiday. It lost a minimal 0.8 points in the year 2075. Meanwhile, the index was neutral in the year 2068.

This is likely because the settlement of the shares traded on the last day happens only after Dashain. Thus, buyers who buy on the last day do not have to pay before Dashain for what they buy. Thus, people will be naturally inclined to get on this temporarily free ride. However, this also means that those who sell on the last day won't get their payment before the Dashain holidays.

Did you see the imbalance in incentive here? It is only natural to get more buyers and fewer sellers in this scenario. Now, what will an excess of buy orders and diminished sell orders give you?

A rise in stock price, of course.

Disclaimer: Markets are prone to volatility and unexpected loss. The stock market is also in a constant debate of those who say "History repeats itself" and those who say "No two events are the same." Be wise. Take your own financial decisions.