Political uncertainty may lead to sell-offs at bourses

The old stock market adage advising investors to "sell in May and go away " may hold true again this year as those who made gains in the market rally last month are likely book profits and remain cautious amid the uncertain political situation in the country.

The adage is premised on the belief that the market has strong growth potential between November and April, while investors sell in May as they start booking profits.

"The theory was developed as the second half of the year is generally more vibrant and investors usually buy during that period. This year investors are likely to be jittery and some weakness is likely on concerns about the election outcome," Bonanza Portfolio Assistant Vice-President Avinash Gupta said.

Historical patterns suggest investor confidence dips in May as players book profits reaped in preceding months. Analysis of market movements in May over the past decade shows that the Sensex was negative on five occasions.

Every gain alternated with a loss. In May 2008, the Sensex gave a negative return of 5.04 per cent. Significantly, the return was in double-digits only once, in May 1999, during the dot-com boom.

In the years when the market gained in May, the Sensex was up 3-19 per cent, while when it dropped in the same month the index was down 5-16 per cent, BSE data show.