'Sell In May And Go Away' Strategy May Be Wrong For Indian Equities
Contrary to the US, the Indian benchmark index showed gains in the May-November period.
"Sell in May, and go away." This strategy has historically worked well for investors in developed equity markets such as the U.S.
Stocks tend to underperform during the summer months starting in May but often rebound at the onset of the holiday season around Christmas and Thanksgiving, driving increased consumption and benefiting companies' earnings.
But does this strategy hold true for Indian equities? Not quite, according to the average returns of the Nifty 50 over the past 12 years.
The NSE benchmark has experienced declines four times between November and May since 2012 (excluding November 2019-March 2020, due to Covid-19), compared to only two declines between May and November during the same period.
The average gain in the index for the November to May period stands at a little over 6%, while for May to November, it rose 8.7%.
It remains to be seen if the following six-month period witnesses a consistent uptrend in Indian markets.
Road Ahead For Indian Equities
Indian equities are poised to lure more foreign inflows after the general elections, with the economy’s promising growth prospects and the Federal Reserve’s rate cuts acting as catalysts.
“Foreign investors who didn’t increase relative positioning in India over last 2-2.5 years waiting for this clearing event, will start focusing back on growth-driven policies or reforms,” Batra, an Asia strategist at JPMorgan, told Bloomberg in an interview.
According to Sunny Agarwal, Head of Fundamental Equity Research at SBI Securities, a forecast of a good monsoon season bodes well for the rural belt. "It will help keep food inflation under control."
Additionally, Agarwal said that healthy corporate earnings growth and an expected increase in consumption in the second half of the year will provide further momentum.
