Going back 32 years to 1980, December has produced a 4.6% median return with an 80% probability the best for any month in the calendar. Over the past 20 years, 1994, 2000, 2001 and 2011 are the only four occasions when December generated negative returns, according to Morgan Stanley Research.

There does not appear to be a common cause for these poor months, least of all the starting point of valuations. Ordinarily speaking, such as this time around, December should prove good for bulls, it opined. 

Since the 1990s, when FIIs started buying Indian equities, the December phenomenon is explained by the fall in institutional activity associated with the holiday season (especially in the second half of the month). Consequently, local speculators tend to exert higher influence on shares and they rise in anticipation of fresh FII allocations in January. While this is one theory for the success of December, facts on January flows do not necessarily prove this. For example, January flows have been negative in four out of the past five years.

Commenting on the what should be look into this December, Morgan Stanley said ''We prefer large-cap cyclicals in banks, autos, media and industrials. The stocks in our focus list include IDFC, ICICI Bank, Maruti, Tata Motors, Zee and L&T."

However, taking a cautious note, Morgan Stanley said, ''The fiscal cliff in the US negatively impacts the SPX. However, market positioning in India is cautious if the put-call ratio is an indicator. The market expects some action on this front in December - if the NIB plan appears practical, it will help equities. The parliament session causes damage to the policy environment. Expectations are low, so an upside surprise is more likely."

Disclaimer: IRIS has taken due care and caution in compilation of data for its web site. Information has been obtained by IRIS from sources which it considers reliable. However, IRIS does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. IRIS especially states that it has no financial liability whatsoever to any user on account of the use of information provided on its website.