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Sell in May and go away, an old stock market adage, cautions investors to dump stocks in May, raise cash and enter the market around November, as it is believed that stocks typically underperform during the May-October period.
While the famous adage pertains to US stocks and has been losing its relevance in recent years, a new study suggests it would be a pretty bad idea following the strategy in India, at least when looking at the returns for last 23 years from May low levels.
The average Nifty gains for 23 years from May low till year-end stood at a solid 21 per cent. During this May low to year-end periods, domestic indices have delivered positive returns in 19 occasions. May returns too have not been that bad with an average one per cent return and a positive strike rate of 57 per cent (13 occasions).
“We have closely examined the performance of NSE Nifty index over past twenty years to verify, if this adage holds true in Indian context. Empirical evidence suggest that in fact May has offered a decent buying opportunity for investors as in 83 per cent of the times year-end returns as calculated from May lows has been positive,” ICICI Secuirties said in a note.
In 2022, Nifty fell 3 per cent in May. But from a low of 15,736 in May, the index deliverd 15.1 per cent till year-end. In May 2021, the index rallied 6.5 per cent. Yet from a May low of 14,416, the index went on to deliver 20.4 per cent return by year-end.
The index in fact hit a low of 8,807 in May 2020 and was down 2.8 per cent for the month. But its return from May low till year-end was a solid 58 per cent.
“Seasonality clearly favours buying in May. Investors would be therefore be better off utilising volatility, if any, during month of May to their advantage and build quality portfolios,” ICICI Securities said.
There were several periods such as 2014 (24.8 per cent return), 2012 (23.3 per cent), 2010 (28.2 per cent), 2009 (49.5 per cent), 2006 (54.2 per cent), 2006 (37 per cent), 2005 (49.4 per cent), 2004 (61 per cent) and 2003 (67 per cent) where returns by index from May lows were solid.
Stocks to buy in May
ICICI Bank, Maruti Suzuki India, State Bank of India (SBI), Dalmia Bharat, Federal Bank, Varun Beverages, Ashok Leyland, PNC infra, ITC, Aarti Drugs, Gland Pharma, Mahindra CIE, Praj Industries, CCL Products (India), Polycab India, and Bajaj Finance are Axis Securities’ top picks for May.
This brokerage has maintained a December end Nifty target of 20,400 by valuing it at 20 times on December 2024 earnings.
Among large caps, Motilal Oswal Securities prefers ICICI Bank, ITC, Larsen & Toubro, Mahindra & Mahindra, HCL Technologies, Ultratech Cement and ONGC.
B&K Secuirties prefers stocks such as SBI, M&M, L&T, UltraTech Cement, among others.
“Given the flows situation, we believe that the market will remain close to the long-term average valuations. Based on our earnings yield framework on a 12 per cent EPS growth for Nifty, which is a bit lower than the consensus growth, and a 10-year bond yield at 7.5 per cent, our base case Nifty Target for March 2024 is 18,750, implying a 3 per cent return. If the expectations of 10-year interest rates come down, that could provide a positive trigger. A 25 bps cut leads to 5 per cent upside on the index,” it said.
