Resurgent in April, can bulls defy ‘Sell in May’ maxim?

Mumbai: Investors tempted to follow the Wall Street adage ‘Sell in May and Go Away‘ after Indian equities’ best monthly gains in recent years in April, must resist the urge, with momentum still favouring the bulls. Seasonality trends also back this view: key indices in the past decade have posted gains in May more often than not. Analysts, however, caution that a runaway rally like the previous month is unlikely as oil prices remain elevated with the West Asia conflict simmering in the background.

In the past 10 years, Nifty has posted gains in six instances, while the Nifty 500 index has gained on seven instances, according to data from Motilal Oswal Financial Services for the past decade.

“After April’s strong rally, May is likely to see more moderate, stock and sector-specific moves rather than broad-based buying,” said Chandan Taparia, head of technical and derivatives research at Motilal Oswal Financial Servicesq. “While a classic ‘sell in May and go away’ trade may not materialise, upside could remain capped amid an elevated dollar and crude prices.”

The average Nifty returns in May for the past 30 years have been 1.84%, and at 2.14% after adding dividends, said Sham Chandak, head of institutional equities at Elios Financial Services. “That said, Indian equities are no longer trading below their historical average valuations. They are at par now. Given we are still in a geographically uncertain environment and the Q4 earnings season could be difficult overall, I expect the market to be largely range-bound (in a 500-point range on Nifty),” he said.
He expects small- and mid-caps to continue outperforming large caps in May. Nifty and Sensex gained 7.5% and 7%, respectively, in April – the highest monthly gains since December 2023 – after both gauges had retreated to multi-year lows in March. The Midcap 150 jumped 13.2%—the biggest monthly upmove since November 2020—and the Nifty Smallcap 250 soared 17.1%, posting its best monthly performance since its inception in April 2016. Indian markets were shut on Friday for Maharashtra Day.

“Although May seasonality, returns-wise, is slightly better, one needs to be mindful of rising crude prices and cues on monsoon. As the pace of foreign selling is slowing, equities have seen a strong rebound since April this year,” said Sriram Velayudhan, senior vice president, IIFL Capital Services. He said Nifty is likely to trade in a range of 23,800 to 25,000 for the month.