Should you sell stocks in May? No, say analysts

Long-term investors can stay put in the markets, but should brace for volatility

May is traditionally considered a bad month for equity markets like Europe and the US as the fund managers there typically go on a long summer vacation.

In the past 10 years (since 2006), Indian markets have given a positive return on five occasions. In 2009 they rallied 28 per cent when the election outcome saw the United Progressive Alliance (UPA) government take charge for the second consecutive term. May 2014 also saw the markets gain 8 per cent after Narendra Modi-led National Democratic Alliance got an overwhelming mandate post the general elections.

On the domestic front, some of the factors that will determine the market sentiment this year include the outcome of elections, status of key bills in Parliament's Budget session that concludes on May 13 and March quarter earnings of Corporate India.

At a global level, markets will be eyeing how commodity prices, especially crude oil, pan out. That apart, the markets will also be preparing for Britain's vote in June on whether to stay in the European Union or not.

So, should you ‘sell in May and go away?’

Experts' views

Given this backdrop, analysts suggest long-term investors should stay put in the markets, but should brace for volatility. Since the presentaion of the Union Budget in February, the markets have gained nearly 13 per cent on the back of supportive domestic and global factors.

In a recent interview to Business Standard, Mahesh Nandurkar, India Strategist, CLSA said that he doesn’t see any big positive triggers for the markets. On the contrary, he thinks there could be a few sentimental dampeners.

Equity investing should be for longer than a year’s perspective, believes Samir Arora, founder and fund manager, Helios Capital.

Arora says that the Indian markets is in a good position right now, with a cyclical upturn underway in the economy. The monsoon is expected to be good, interest rates have been cut and going ahead, we can expect more (rate) cuts.

Corporate profits, too, should grow by mid-double digits, albeit partly due to the low base of 2015-16. Although it is difficult to predict the very short term, he says in general, markets should do well.

"I normally ask investors to invest in two or three instalments -- that is mentally easier for an investor to follow, as he feels he is not totally committing to a strategy right away. Generally speaking, since we expect equity markets to do well, the advice for the investor would to be get going," he says.

“We believe that while any possible failure of forthcoming monsoon would be a risk factor from the domestic front, any rise in the deflationary pressures – possibly from further slowdown in the US economy – would be a risk factor from the global front,” points out G Chokkalingam, founder & managing director, Equinomics Research & Advisory.

“In our view, it is little early to worry on both fronts in the short-term. While we will continue to remain alert on both monsoon performance and global deflationary pressures, we suggest our investors to stay invested – with an exposure of 35 per cent overall wealth for an average conservative investor – with stock specific approach,” he adds.

Photograph: Shailesh Andrade/Reuters