‘Sell in May and go away’ strategy unlikely this year: Experts

By: | Published: May 12, 2016 2:10 PM

The popular stock market adage 'Sell in May and go away' strategy is unlikely this year also, experts say, adding there can be a near-term volatility based on global events.

On what would be the driving force for the stock market going ahead, he said, improvement in corporate performance, good monsoon and continuing easy liquidity globally.

The popular stock market adage ‘Sell in May and go away’ strategy is unlikely this year also, experts say, adding there can be a near-term volatility based on global events.

“Sell in May and go away is not a good strategy in India as accepted in global market. As per the history of the last six years, the average return during May-October is positive at 7.33 per cent. Hence, this period does provide a good chance to have positive return,” said Vinod Nair, Head Of Research, Geojit BNP Paribas Financial Services Ltd.

The strategy says an investor, who sells holdings in May and gets back into the equity market in November, avoiding the typically volatile May-October period, would be better off than an investor who stays in equities throughout the year.

“The underlying domestic fundamentals are positive and there are prospects for above normal monsoon, signs of revival in earnings outlook going forward. So, we believe there should not be any situation to avoid May-October period though there can be near-term volatility based on global events, a major sell-off is not likely rather than volatility in the near- term,” he said.

The benchmark BSE Sensex in May 2010 fell by 2.53 per cent, while in 2011, the index lost 2.6 per cent and tumbled 6.26 per cent in May 2012.

The Sensex, however, gained 1.31 per cent in May 2013. In 2014, it had gained 8 per cent, while last year it went up by 3 per cent.

“We don’t think that this strategy is likely to work this year. If we analyse the last 11 years data of Sensex of May month, we will find that in six out of eleven years Sensex returns were positive. So we can assume that this strategy does not work every year and this phenomenon works once in a while,” said Nirdosh Gaur Managing Director and CEO Moneypalm.

Volatility is part and parcel of stock market and it can see volatility in any month or period of the year, Gaur said.

“Sell in May and go away strategy is unlikely although the market may fall but not in a big way,” Vijay Singhania, Founder-Director, Trade Smart Online said.

The 30-share index has gained 0.62 per cent so far this month and experts see the positive momentum going ahead amid chances of earnings growth in FY17.

“Following factors will decide the trend in markets over the next few weeks — further insights into the arrival and progress of monsoons, remaining quarterly results, movement in crude prices and in the dollar index,” said Dipen Shah, Senior Vice-President & Head of Private Client Group Research, Kotak Securities.

We believe with supportive macro indicators and corporate performance on the mend, investors will be attracted towards the markets. We also believe that equity markets will offer better relatively returns over the course of the fiscal, Shah added.

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