The Indian stock market witnessed a rebound in the Nifty 50 index after it tested its 50-day exponential moving average (DEMA) support level, sparking discussions about the potential start of a "Santa Rally".

Nifty's Recent Performance

The Nifty 50, the main index for the National Stock Exchange of India (NSE), tracks the performance of the top 50 stocks by market capitalization from 13 sectors of the Indian economy. As of December 18, 2025, the Nifty 50's current price is ₹25,878.40. Intraday, the Nifty is trading at a crucial support level of 25,800-25,850. If it breaches 25,880, it could test 25,950. A fall below 25,790 might lead to testing the 25,700 level. The index has experienced a decrease of -0.18% in the past week and a decrease of -0.50% over the last month. However, it has increased by 5.98% over the past year. The Nifty 50 reached its highest value ever on November 30, 2025, at 26,325.80 INR.

What is the 50-DEMA?

The 50-DEMA is a widely-used technical indicator that represents a stock's or index's average price over the past 50 days, with more weight given to recent prices. It helps identify potential support and resistance levels, as well as overall trends. A test of the 50-DEMA often signals a potential continuation of the prevailing trend or a possible reversal.

Santa Rally: A Seasonal Phenomenon

The "Santa Rally" is a seasonal phenomenon referring to a tendency for stock prices to rise during the last few trading days of December and the first few days of January. Several factors contribute to this occurrence, including:

• Festive Optimism: The holiday season often brings a sense of optimism and increased consumer spending, which can boost investor sentiment.
• Low Trading Volumes: Many institutional investors close their books for the year, resulting in lower trading volumes and potentially exaggerated price movements.
• Portfolio Rebalancing: Fund managers may engage in window dressing, buying stocks that have performed well to improve the appearance of their portfolios before the end of the year.
• Tax Considerations: Investors may engage in tax-loss harvesting, selling losing stocks to offset capital gains, and then reinvesting in the market in the new year.

Will Nifty See a Santa Rally This Year?

Historically, the Nifty has shown an 80% win rate during the Santa Rally period, delivering gains in 16 out of the past 20 years. However, the presence of a Santa Rally depends on several factors:

• Global Risk-On Sentiment: International markets often rally due to year-end portfolio rebalancing, lower institutional trading volumes, and festive optimism. The Nifty tends to mirror this behavior, especially when FIIs become net buyers.
• Domestic Liquidity: India's increasing SIP culture creates a reliable liquidity cushion. Even if FIIs remain cautious, strong support is provided by domestic institutions and retail flows.
• Corporate and Macro Visibility: By December, most earnings downgrades are factored in, the Q3 outlook becomes clearer, and global central bank signals stabilize, reducing uncertainty.

Sectoral Performance and Key Stocks

Historically, IT, Metal, and Real Estate sectors have led December returns. Stocks like Steel Authority of India Ltd., Dixon Technologies, and Jindal Steel have shown consistent positive performance in December.

Conclusion

The Nifty 50's rebound after testing its 50-DEMA support has raised hopes for a Santa Rally in the Indian stock market. While historical data suggests a high probability of gains during this period, several domestic and global factors will influence the market's trajectory. Investors should stay informed, monitor market trends, and make data-driven decisions.