As May unfolds, the age-old investment proverb, “Sell in May and go away,” is under scrutiny once more. With the Sensex, a key benchmark for the Indian stock market, showcasing an impressive 9% increase over the past couple of months, many investors are left contemplating: does this saying still ring true in 2023? While considerable buying activity from foreign institutional investors and favorable economic policies have bolstered the market, lingering concerns—such as unresolved trade disputes, ongoing India-Pakistan tensions, and potential earnings downgrades—cast shadows over the outlook for the month ahead.
Analyzing May’s Historical Trends
Historically speaking, the adage doesn’t hold firm for the Indian market. Over the last decade, the Nifty index has achieved positive returns in 60% of Mays, delivering gains in six out of ten years. This data indicates a more optimistic outlook than the traditional saying suggests.
- Average decline during negative Mays: -1.56%
- Average gain during positive Mays: 3.51%
Kunal Kamble, a Senior Technical Research Analyst at Bonanza Group, highlights these figures, emphasizing that May has often been favorable for investors.
Predictions for Indian Stock Market Behavior in May
Market analysts are optimistic that the upward trend may continue into May, albeit with potential minor pullbacks. Ruchit Jain, VP and Head of Equity Technical Research at Motilal Oswal Financial Services, points out that the Nifty 500 stocks have historically demonstrated positive returns in 7 out of 10 Mays. This historical context suggests that the “Sell in May” philosophy may not hold weight this year.
Despite a strong performance in April, Jain notes that current charts indicate the start of a new bullish phase post a recent correction between 21,750-22,000. He cautions, however, that with the Relative Strength Index (RSI) appearing slightly overbought and resistance levels around 24,550, profit-taking could occur.
Market Strategy: Staying the Course
Both Kamble and Jain encourage investors to maintain their positions amid geopolitical uncertainties. Jain advises viewing any market dips as opportunities to buy, asserting, “Any correction should be seen as a pullback within an overall uptrend.” This sentiment is echoed by Kamble, who notes that the index remains above key Exponential Moving Averages (EMAs), reflecting ongoing strength.
From a derivatives perspective, Kamble mentions that the heaviest option open interest for May is at the 25,000 Call level, indicating a significant resistance area, while a solid support base rests at 23,500. He emphasizes that the upward trajectory is likely to persist as long as the market remains above 23,850.
Foreign Institutional Investors’ Impact
The recent activity of Foreign Institutional Investors (FIIs) underscores India’s rising influence in global markets. In April, FIIs became net buyers, injecting ₹4,223 crore into the equity cash segment over the last ten days.
Recommended Trading Approaches
Analysts advocate a buy-on-dips strategy, as concerns related to the Dollar Index and FII selling have diminished. Jain explains that the market conditions have turned favorable, with the Dollar Index now below 100 and the USD-INR rate stabilizing around 84.50. Despite ongoing geopolitical tensions with Pakistan, Jain believes the markets will likely factor this in soon, making it wise to adopt a buy-on-dip approach.
In conclusion, while the “Sell in May and go away” adage has its historical roots, current indicators suggest that investors should remain optimistic and consider any market dips as prime buying opportunities for the future.
