‘Sell in May and go away’: Will this adage come true for Indian stock market after strong gains in last two months?

Stock market outlook: “Sell in May and go away” — the old stock market adage is once again under the spotlight as the month of May kicks off. With the Indian stock market benchmark index Sensex posting a robust 9% gain over the past two months, investors are wondering: Does the saying still hold water this year?

While strong buying by foreign institutional investors and supportive macroeconomic policies have fueled a stock market rebound, real concerns like unresolved tariff disputes, India-Pakistan tensions and risks of earnings downgrades still linger, prompting worries of a possible trend reversal in May.

Historical trend in May

According to the historical trend on Dalal Street, this adage doesn’t hold true for the Indian stock market, as Nifty has delivered positive returns in six out of the last 10 years in May, reflecting a 60% probability of a bullish outcome.

“While the average decline during the four negative Mays was -1.56%, the average gain during the positive years stood at a notable 3.51%, making May historically favourable for buyers,” said Kunal Kamble, Senior Technical Research Analyst at Bonanza Group.

How will Indian stock market move in May?

Analysts believe the positive trend might extend to May, with a possibility of minor pullbacks but not a downtrend.

If we look at historical data, the Nifty 500 stocks have given positive returns in the month of May 7 out of 10 times, and hence the adage of ‘Sell in May and Go Away’ has not been historically proved correct in last 10 years, opined Ruchit Jain, VP – Head of Equity Technical Research, Motilal Oswal Financial Services.

The markets have seen a run-up in the month of April, but charts indicate that this is the start of the next leg of the uptrend post the completion of the recent corrective phase near 21,750-22,000, he added. However, he cautioned that with the RSI looking a bit overbought and retracement resistance seen around 24,550, we might see some profit booking.

Jain added that as we may see a pullback move due to uncertainty over geo-political tensions, but not a down trend and thus, we advise investors to stay put and hold their investments from a bit mid-term perspective. “Any correction should just be seen as a pullback move within an uptrend and should be used as a buying opportunity,” Jain opined.

Kamble of Bonanza Group also echoed similar views. He said that the index is trading above its major EMAs, indicating sustained strength in the trend.

“From a derivative perspective, option open interest for the May series is heaviest at the 25,000 Call level, indicating a strong resistance zone, while the Put base stands at 23,500, reflecting solid support. The upward trend is likely to remain intact as long as the market holds above 23,850,” said Kamble. He also advised viewing any dip as a buying opportunity in the index.

Fundamentally, too, India remains in a favourable spot regarding the ongoing tariff war amid a rising possibility of a trade deal with the US. Mark Mobius, who has been investing in developing markets for about three decades, recently told Bloomberg that some emerging market countries, such as India, will do quite well in the current environment. Even Jefferies’ Christopher Wood championed investing in the Indian stock market and selling US stocks amid the uncertainties looming over the capital markets due to Donald Trump’s trade tariffs.

The behaviour of FIIs signals the growing clout of India in the global environment. FIIs have turned net buyers over the last ten days, infusing ₹4,223 crore in the equity cash segment in April.

What should be the trading strategy now?

Analysts are largely recommending a buy-on-dips strategy as worries such as rising dollar, FII selling and trade tensions have ebbed.

“The factors that had led to correction in our markets, such as the rising Dollar Index and FII selling, have turned favourable for us. The Dollar Index is hovering below 100, FIIs have turned buyers in equities, and the USD INR has strengthened to around 84.50. This should result in a sustained upmove for our market in the medium term,” Jain of MOSL said.

The only concern is the geo-political tensions with the neighbouring country, Pakistan, and we do not know to what extent it will escalate. However, we believe markets would factor in that soon and thus, one should keep a buy-on-dip approach and use declines as buying opportunity, he added.

Disclaimer: This story is for educational purposes only. The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.