If one believes the May selloff theory— which is based on calendar patterns of the market movements that has held true over the years across the world— bear investors could well be busy booking profits on their portfolios this month. But if you are a bull, history, this time, is on your side.
A 10-year return analysis starting from 1998 shows that sensex gives negative returns in May every alternate year. In May 2008, sensex fell 5% or down nearly 900 points, so if the alternate year pattern is to be maintained, sensex has to ‘rise’ to the occasion in May 2009. Monthly gains have ranged between 113 and 672 points.
In the booming May months, bulls have pushed sensex to give gains between 3% and 19%, while ‘May’ falls have seen bears pull down the index 5-16%, BSE data shows.The stock market adage of “Sell in May and go away’’ hinges on the belief that the period from November to April inclusive has significantly stronger growth on average than the other months.
Naturally, in such a market strategy, stocks are sold at the start of May, leading to a deep correction.
But investors in India, as mirrored by sensex, play the May game differently. While bulls win in May one year, bears have the ‘May’ cake the year next.
For instance, in May 2007, sensex gained 4.85% (672 points), while in May of 2006, the monthly losses were at 14% (-1,644 points). This time around, elections could play a vital role in what kind of gains, if any, are handed out for the month of May.
“Currently the markets trade at a forward PE of 11-13 times the FY10 earnings. Investing in dips from these levels can be beneficial from the long term investment point of view. We recommend that investors continue to systematically invest in the market taking advantage of the dips and sticking to safer avenues like the large-caps, with a mediumto long-term horizon in view,’’ Religare Finvest told its personal financial services clients.
However, a negative outcome, than what the Dalal street perceives, could mar the party for bulls. Monthly losses for May have ranged between 212 and 1,644 points for sensex.
“In our view, the most likely scenario for the new government at the centre, post the May-09 elections, remains one that will be weaker than the current one. This will raise concerns that the policy framework will itself be weak and pressures from coalition partners could result in an ‘irresponsible’ policy stance on key issues and a sustained high fiscal deficit,’’ N Krishnan of CLSA Asia-Pacific Markets warns.
Source: Times Of India
