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'Sell in May & Go Away': Will bears dominate D-Street this month?

Some experts suggest that for all categories of investors - institutional as well as retail - partial profit booking is advisable since valuations are high and uncertainty is rising; expect a reasonable 5-10 percent correction in markets

May 11, 2021 / 09:47 AM IST

May, which is traditionally known to be bad for equity markets, especially in Europe and the US, has so far turned out to be good for Indian markets, thanks to some well-thought measures by the Reserve Bank of India (RBI), and the ongoing vaccination drive amid a surge in COVID cases.

"Sell in May and go away" is a famous investment adage warning investors to sell their stock holdings in May and wait to reinvest in November at lower prices.

Historical evidence suggests that the Nifty50 closed in the green in at least six out of the last 10 years for the month of May!

May, this year, is slightly tilted towards the bears amid a rise in COVID cases and partial lockdowns, which are mostly getting extended across states. But, there is an equal chance of bulls running the show if daily COVID cases cool down, and Nifty50 holds above 14,800 levels.

But, purely looking at the technicals, the Nifty50 will be able to hold onto gains if it manages to trade above 14,800, and a close below this level could see some bears in action.

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If the lockdowns do get extended and there are no signs of peaking-out, which was earlier anticipated, then some profit booking up to 5-10 percent is possible, suggest experts.

Crucial support for the index is placed at 14,200 levels, and on the upside, stiff resistance is placed at 14,900-15,000 levels.

Foreign investors have pulled out Rs 5,936 crore from Indian equities in the first week of May amid worries over the intense Second wave of coronavirus infection and its fallout on the economy.

If the lockdown gets extended further, it would hurt the economy as well as earnings of India Inc. Last week S&P Global Ratings slashed India's GDP growth forecast for the current financial year to 9.8 percent, saying the Second COVID wave may derail the budding recovery in the economy and credit conditions.

Amnish Aggarwal, Head – Research, Institutional Equities told Moneycontrol: “We believe that there could be some cut in NIFTY EPS as we go along the earnings season. The current bout of uncertainty makes it difficult to judge the actual impact of COVID-19 on consumer demand and corporate profits in the medium term.”

“While we won’t recommend ‘sell and go away', we expect a reasonable 5-10 percent correction in markets due to the current situation. Our long-term outlook remains intact and we would like to advise buying stocks on declines,” he added.

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The Indian market has been resilient so far in the month of May at a time when daily coronavirus COVID cases are topping 4 lakh, and states are looking to extend the lockdown. UP and Delhi have extended their lockdown till May 17 over the weekend.

“These are abnormal times and therefore the normal trends need not apply. But selling and profit booking can happen in May,” Dr VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, said.

“For all categories of investors - institutional as well as retail - partial profit booking is advisable since valuations are high and uncertainty is rising,” he added.

Technical View:

The Nifty50 reclaimed 14,800 levels for the week ended May 7, but experts feel that the current resilience is irrational. However, if the index manages to sustain 14,800 levels then a breakout is possible above 15,000 on the Nifty, which at present is likely to act as still resistance.

“The present resilience of the market is irrational when viewed from the perspective of the health crisis and the pain that the nation and the economy are going through,” Sacchitanand Uttekar, DVP – Technical (Equity), Tradebulls Securities said.

“The disruption due to lockdowns would negatively affect most sectors in the coming months. Bulls have remained in control on the back of ‘hope trade’ being fueled by global liquidity and expectation that the Second Wave will peak in May and normalcy would resume once the ongoing vaccination programme picks up pace,” he said.

Uttekar further added that the index managed to form an elevated base around 14,500 within the ongoing broader consolidation range of 14,850-14,250. With its rate-sensitive sectors like banks, auto and realty showing signs of bullish reversals, we believe the month of May could bring in the much-awaited breakout above 15,040 and a rally towards 15,600.

Disclaimer: The views and investment tips expressed by the investment experts on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Kshitij Anand is the Editor Markets at Moneycontrol.

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