Sell in May and go away: Analysts say volatility is here to stay

Sell in May and go away—the famous financial-world adage might just hold true for Indian markets this year if we go by analysts expectations.

The phrase is based on the historical underperformance of some stocks in the "summery" six-month period commencing in May and ending in October, compared to the "wintery" six-month period from November to April, according to Investopedia.

If a trader or investor follows the sell-in-May-and-go-away strategy, we could see some selling from May to October, and buying in the period starting November to April.

Though in the last five years, this phenomenon has come true for Indian markets only in 2018 when Sensex gave a negative return of 2 percent in the period starting May to October and gave positive returns of over 13 percent in the next six months, AceEquity data showed.

“The given motto does not exist, at least in Indian markets. However, this time it seems likely that this could be a wise strategy as the outcome of a stable government post-election might have been discounted,” Mehul Kothari, Sr. Technical Analyst, IndiaNivesh Securities Limited told Moneycontrol.

For 2019, there are multiple headwinds to deal with that could push the markets lower. After hitting a record high of 11,856 last month, persistent selling by foreign investors, uncertainty around elections, weak corporate results, the slowdown in the economy and trade tensions globally will keep traders on the edge, according to experts.

“Thus, it augurs well with our view that traders should start booking their profits at higher levels and sit on cash,” Kothari adds.

Indian bourses also became vulnerable to the US-China trade spat that has spooked global markets. Incidentally, foreign investors have pulled out more than Rs 3,000 crore from Indian markets so far in May.

Any adverse outcome from US-China trade talks could put pressure on the rupee which is seeing consistent depreciation. Any depreciation in the yuan will further put pressure on the rupee as the dollar keeps gaining strength amid the tussle.

Given weaknesses in global macros and an uncertain political situation in India due to elections, market participants are wary of taking any major positions, suggest experts.

Jimeet Modi, Founder & CEO, SAMCO Securities & StockNote advised that amid the uncertainties investors must form an independent view of their own and not blindly follow third-party opinions.

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