Market holiday hangover? Unravelling the mystery of truncated trading weeks

And to top it, the current week has just three trading days, only the 22nd such instance since 2011.

What do truncated trading weeks mean for market behaviour? A Mint analysis of data since 2011 showed that the Sensex gained in 60% of the 22 heavily truncated weeks (those with only three trading days). However, in most such cases, it lost these gains the following week. Overall, the benchmark index outperformed both the preceding and subsequent trading weeks in 52% of these cases, suggesting that short weeks don't necessarily equate to particularly weaker or stronger returns.

Ranju Rajan, head of managed accounts at Axis Securities, noted that the shortened trading week following last week's tariff reprieve opened with improved sentiment. “Normally, such scenarios are noted for ‘sharp buying’ (or selling), especially if there is a major impact at the global or domestic level (e.g policy change, elections or any such events)," he said.

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In the current truncated week, the Sensex posted a 4.5% gain until Thursday (Friday is a holiday), contrasting with a nearly 0.3% decline in the preceding week when markets were impacted by tariff concerns. Another notable instance of this outperformance occurred in the week of 30 March 2021, when the Sensex delivered a 2.1% return, contrasting with contractions in the prior and subsequent weeks. During the covid-induced lockdown, in the week of 7 April 2020, the Sensex surged nearly 13%, significantly outperforming the weeks before and after.

Harshal Dasani, business head at INVasset PMS, a portfolio management service provider, said this trend seemed more coincidental than consistent. “It’s not the calendar that’s moving the market, but the shifting macro context," he said.

But some believe it’s more than a random chance. “Fewer trading days can reduce market noise and speculative churn, allowing price action to follow existing trends more cleanly," said Sumeet Bagadia, executive director at Choice Broking. “With limited time to react to global developments, markets often display greater resilience."

Short-covering ahead of holidays can also add a layer of support, further boosting market strength during these weeks, he added.

Investors generally adopt a more cautious stance during truncated weeks, primarily due to reduced trading days and thinner volumes, experts noted. “Market participation, especially from institutional players, tends to taper off as traders and fund managers adopt a more cautious stance. The limited number of trading sessions compresses decision-making time, and in such periods, there's noticeable reluctance to take large directional bets," said Sundar Kewat, technical and derivatives analyst, Ashika Institutional Equity.

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Many seasoned participants use these weeks to trim positions, rebalance portfolios, or simply stay on the sidelines, waiting for clarity in the full trading week ahead, Kewat added.

While these weeks can see a meaningful uptick in activity when there are key events like earnings, central bank decisions, or global developments, the absence of such catalysts typically results in range-bound markets with a subtle defensive leaning, experts said. Yet, long weekends can introduce an element of overnight global risk. “Any major development in international markets during the break can lead to gap-ups or gap-downs upon reopening," Kewat added.

And what about volatility? In 12 of the 22 truncated weeks that were part of the analysis, the Nifty VIX, the fear gauge, showed an increase. However, this week, it has fallen almost 23.1% after spiking by around 46% last week. “The initial spike in VIX was a reaction to the tariff drama, but as those fears settled and clarity emerged, volatility began to cool off," noted Dasani.

Experts suggest that volatility in these periods is driven more by factors like market positioning, uncertainty, and unexpected events, rather than solely by the reduced trading volumes.

“Any major development during the break—whether geopolitical or economic -- can lead to sharp reactions when markets reopen, especially in low-liquidity setups," Kewat added. However, calm markets in short weeks shouldn't be mistaken for low risk. The backdrop matters, and in uncertain global conditions, caution is not just warranted, it’s wise, he added.

That said, the ongoing tariff retaliation and policy uncertainty plaguing global markets increase the risk associated with extended weekends.

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