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Think twice before you sell in May and go away

VK Sharma     April 30, 2018

The April series ended with a flourish at 10,618, marking the highest close since February 5, 2018. This is significant as this is the highest close since the Nifty began making lower tops and lower bottoms.

Resistance now comes at 10,705.  This level marks the 61.8% retracement of the Nifty's 1,220 points fall from 11,171 mark to 9,951.

A close above the mark of 10,705 should be seen as an end to the current bearishness.

There is a market myth, propagated by some of the talking heads on TV that you can safely sell in May and go away.

Coupled with this is another fear that in the month of May we have had instances of lower circuits in our markets in May 2004.

We have the Karnataka election results on May 15, which could make the bulls think twice before building longs.

Plus the fear that US may re-impose sanctions on Iraq as the deadline of May 12 nears, which could trouble the markets further.

But before you think of selling in May and going  away,  just remember that of the 30 individual May months we have studied since 1990, it has fallen in only 12 and risen in 18, giving an average return of +0.62%.

Plus the average return of the year from January to April, in all 12 instances when the markets fell in May, the markets had risen 14% on an average. The year to date returns of the Nifty, are a paltry 0.83%.

Don't fall into this trap.

While selling in May and going away may be true for the U.S. , it is certainly not a sound idea for India, no matter how fearful you may feel.

Approach the month of May with an open mind.

Better Results

After a paltry average CAGR of 3% for the last 4 years, we are going to end FY 18 with an earnings growth of 10%. FY 19 promises even better, a very healthy 25% growth.

GST Numbers will only improve

For the month of March the GST collections have been Rs 96,000 crore the highest so far.

Plus with the E-way bill has been made compulsory from April. The number will only get better.

Karnataka is still a developing story

The markets are despondent on BJP's electoral performance in Karnataka, especially after the Congress played its Lingayat card well.

For a market which is just licking its wounds inflicted by LTCG and FII selling is ignoring the positives and reading too much in the negatives, it may be better to approach May with an open mind rather than with preconceived notions of selling and going away.

VK Sharma is head - PCG & Capital Market Strategy, HDFC Securities

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