Anecdotal evidence suggests that bulls have had an upper hand in May. In 6 of the last 10 years, Nifty ended the month with gains to its name.
There is an old adage about ‘selling in May and going away’, but one may do well to not pay too much attention to it.
The way the Indian market climbed all walls of worry to breach key resistance levels suggests that investors will be better off buying stocks in May and holding them for a long period of time in order to create the maximum possible wealth.
While selling in May and going away may be true for US markets, it is certainly not a sound idea for India, irrespective of how fearful you may feel, experts said.
Anecdotal evidence suggests that bulls have traditionally had an upper hand in May. In 6 of the last 10 years, Nifty ended the month with gains to its name. The index rallied 20 percent in May 2009, and another 8 percent in May 2014. It rose over 4 percent each in May of both 2016 and 2017.
On the other hand, the index finished in the red in 4 of the last 10 years. It fell 6.7 percent in May 2008 and by 6.2 percent in May 2012. In May of 2010 and 2011, the index slipped 2-3 percent.
Even if you were to extrapolate this trend for more than the last decade, you would find that it holds true in general. The Nifty has more often than not pleased the bulls in May.
"Before you think of selling in May and going away, just remember that of the 30 individual May months we have studied since 1990, it has fallen in only 12 and risen in 18, giving an average return of 0.62 percent," V K Sharma, Head-Private Client Group (PCG) at HDFC Securities, told Moneycontrol.
"Additionally, the average return of the year from January to April, in all 12 instances when the markets fell in May, the markets had risen 14 percent on an average. The year to date returns of the Nifty, are a paltry 0.83 percent. Don’t fall into this trap," he said.
The Nifty hit 10,700 on Monday and is all set to reach its next crucial resistance level of 10,900-11,000. A lot of this magic has largely been led by stable earnings from India Inc. However, boiling crude oil prices, assembly elections in Karnataka and the US Federal Reserve's meeting due later this week could add to volatility in the market.
"Two most important events lined up in the month of May are Karnataka election result and a majority of Nifty companies declaring quarterly results. If BJP performance improves in Karnataka we may see markets cheering the outcome," Viral Chheda of SSJ Finance & Securities told Moneycontrol.
"On the annual earnings front market expects (ex PSU banks) marginal 5-7 percent improvement in Nifty earnings. According to me, markets may remain sideways in the month of May with the upside capped at 10,800 and a strong support at 10,400," he said.
What should investors do?
May could turn out to be a crucial month for Indian markets as India Inc continues to declare results for the March quarter. However, markets could remain volatile due to many external reasons and investors should use any dips to dig into quality stocks.
"In the last 5 years, the market was up in the month of May. Hence, I believe, rather believing in phrases one should be very selective while picking stocks for investment, one should focus on high-quality stocks where earning visibility is there," Goldi Jain, AVP - Advisory, Sharekhan by BNP Paribas, told Moneycontrol.
Indian markets are currently on a strong footing and looking at the manner in which the Nifty reclaimed 10,700, the momentum seems to be going nowhere. Also, most of the large-cap names are hitting fresh record highs, which is a positive sign for markets.
As many as 195 stocks hit fresh record highs on BSE, including MRF, Nestle India, Abbott India, Venky’s India, TCS, VST Tillers, Jubilant FoodWorks, Reliance Industries, V-Mart, TeamLease, Britannia Industries, Shriram Transport Finance, Kotak Mahindra Bank, HCL Technologies, MindTree, Escorts, M&M, Indiabulls Ventures, and D-Mart, among others.
"We believe that large caps are likely to outperform midcaps leading to a contraction in the premium that midcaps command right now," Vivek Misra, Head - Fundamental Research at Karvy Stock Broking, told Moneycontrol.
"However, one should keep in mind that there are a good number of quality mid-cap stocks that are likely to turn in a good performance. Please see the list of stocks in the answer above," Misra said.(Disclaimer: Reliance Industries Ltd. is the sole beneficiary of Independent Media Trust which controls Network18 Media & Investments Ltd.)Get access to India's fastest growing financial subscriptions service Moneycontrol Pro for as little as Rs 599 for first year. Use the code "GETPRO". Moneycontrol Pro offers you all the information you need for wealth creation including actionable investment ideas, independent research and insights & analysis For more information, check out the Moneycontrol website or mobile app.