Market outlook: Should you sell stocks in May and go away?

The month of May is traditionally considered bad for equity markets, especially in Europe and the US, as fund managers typically go on a long summer vacation – and hence the adage “Sell in May and Go Away.” 

As markets head into May, most analysts remain cautious and expect the Indian markets to remain volatile – taking cues from global (oil prices, bond yields, policies of global central banks) and domestic (rising Covid cases, pace of vaccination, extension of lockdown and mobility curbs across key states) developments.

Since 2010, the S&P BSE Sensex has given a positive return on six occasions in May, data show. In May 2014, it surged 8 per cent – the biggest percentage-wise gain in May in the last decade – after Narendra Modi-led National Democratic Alliance (NDA) got an overwhelming mandate post the general election.

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“Investors can use a correction as a buying opportunity from a six – nine month perspective. Continue to prefer cyclicals and mid-caps. From an asset allocation perspective, equities offer a better hedge against rising inflation, and hence our constructive outlook on equities continues,” wrote Jitendra Gohil, head of India Equity Research in a recent co-authored note with Premal Kamdar, their equity research analyst.

Technical indicators, too, suggest an upside amid intermittent corrections. The S&P BSE Sensex can move up to 51,000 and then 51,800 levels, which is the next resistance zone for the 30-share index. The support comes in at 100-day moving average (DMA), which is located at 48,913. Till this support is held, the outlook remains bullish.

Nifty50, on the other hand, is heading towards 15,250 to 15,350 levels, which are its next resistance zones. The Relative Strength Index (RSI) has conquered 53 value, indicating strength. The outlook is bullish until the index is able to defend 14,444 level, which is its 100-DMA.

As regards Covid, a second wave in India, analysts say, is also not an outlier. Those at CLSA, for instance, expect India to get to a median mark of four months when the cases start to peak out by mid-June 2021 and India ex-Maharashtra by the end of June.

Those at Nomura, too, looked at 30 countries (top 30 countries by GDP), and 16 of them have had a third or fourth wave. “Until enough people develop antibodies, we will continue to witness such waves – big or small – depending on the severity of virus mutations and vaccine effectiveness,” they said in a recent report.