General Elections 2024: With polls underway, will ‘Sell in May and Go Away’ adage apply this year? Experts answer

The adage “Sell in May and Go Away” suggests that investors should sell their stock holdings in May and not return until the fall. This strategy is based on historical patterns of stock market performance, where stocks tend to underperform during the summer months and recover in the fall.

However, whether this strategy will be effective this year is uncertain. While the Indian benchmark Nifty index has been experiencing a rise in the early months of 2024, it doesn’t necessarily mean that the market will decline in May.

Some investors believe in the adage and may choose to reduce their exposure to the market in May. Others may take a more nuanced approach, considering the current economic environment and other factors before making investment decisions. However, one must note that it’s important for investors to conduct their own research and consider their own risk tolerance and investment goals before making decisions based on this adage or any other market trends.

It is also important to point out that the above mentioned adage has not been true every year. Indian benchmark Nifty has given positive returns in May in the last 4 of 7 years. Last year, in May 2023, the Nifty rose 2.6 percent after a 3 percent decline in May 2022. Meanwhile, it jumped 6.5 percent in May 2021, fell 2.8 percent in May 2020, rose 1.5 percent in May 2019, was flat in May 2018 (down 0.03 percent) and rose 3.4 percent in May 2017.

Indian Stock Markets

The Indian stock market has been buoyed by several positive macroeconomic trends. A rise in GDP growth indicates a strong economic environment, which often correlates with positive performance in the stock market. Additionally, continued inflows from foreign investors (known as FPI or FDI) suggest confidence in the Indian economy and can provide liquidity to the markets.

Expectations of Prime Minister Narendra Modi taking office for a third term might also contribute to market optimism. Modi’s tenure has been marked by a focus on economic reform, infrastructure development, and efforts to attract foreign investment. His potential re-election could imply a continuation of these policies, which investors may view as beneficial for the Indian market. These factors together create a favorable environment for the Indian stock market, keeping it active and dynamic.

Even though the ‘Sell in May and Stay Away’ trend hasn’t been very effective in the last few years, what will this year see? Here’s what experts have to say:

Apurva Sheth, Head of Market Perspectives & Research, SAMCO Securities

Contrary to popular belief the month of May has actually delivered positive returns most of the times. In the last 7 out of 10 years, Nifty 50 has closed on a positive note. The average gain in these 10 years was 2.2 percent which is the third highest of all the months. The markets have also delivered an average gain of 14 percent six months prior to the election results being announced. Nifty is up by about 8 percent so far. With only slightly more than one month remaining to the general election outcome, we believe that Nifty can catch up with the average.

Vinit Bolinjkar, Head of Research, Ventura Securities

The “Sell in May and Go Away” adage regarding stock market seasonality is widely recognised, yet it doesn’t consistently ensure success. In recent years, the strategy’s effectiveness has been questioned. Especially considering the current elections, the anticipated correction in May may have actually taken place in April. We expect the markets to trade counter to this adage and rally into the election results announcements.

Diwakar Rana, Senior Equity Research Analyst, Prudent Equity

The markets are extremely dynamic; they can exhibit optimism through rallies or pessimism through extreme volatility. Therefore, in every market, the ‘Sell in May’ remark is illogical and unjustified.

Nifty has only had negative returns in May in two of the previous six years; in one year it was flat. Consequently, out of six years, Nifty has only delivered negative returns in the three months from May to July of 2019, in the remaining years it traded in positive territory.

The upcoming four to five years should be the main emphasis. India’s golden era is yet to begin, with GDP growth of 7% to 8 percent annually. As the country grows, the stock market will most likely rise, serving as an indicator of the nation’s health. Markets may pull back during this journey, but investors should ignore short-term market anomalies and concentrate on long-term wealth creation.

Sunil Damania, Chief Investment Officer, MojoPMS

The adage “Sell in May and Go Away” originated from the practices of British brokers on the London Stock Exchange, who historically took extended summer vacations. However, contemporary market dynamics have rendered this notion obsolete, as trading activity remains robust year-round with no significant impact on volume or liquidity during the summer months.

Examining market trends over the past decade reveals a pattern of positive returns in nine out of ten instances for the three-month period ending in July. This suggests that holding investments from April to July typically yields favourable results, with the sole exception occurring in 2019, coinciding with an election year. Given the current electoral landscape, there exists a likelihood of profit booking in anticipation of market shifts.

Trivesh D, COO at Tradejini

There is no guarantee the market will follow the historic election year pattern in 2024. While ‘Sell in May and Go Away’ has held weight in some past years, elections can be a paradigm shift. Historically, these periods see a boost in market sentiment due to several factors. Firstly, increased government spending injects liquidity and stimulates consumption. Secondly, budgets often prioritize public appeasement, further influencing markets. Finally, a stable government outcome fosters positive sentiment from companies and investors.

The positive sentiment along with the hope for a stable government, historically translates to good market performance during elections. However, there is no fixed mantra, investors should not blindly follow trends. It is crucial to stay updated, identify sectors likely to benefit from elections, and strategically invest in those companies.

Yes, elections can bring volatility due to initial uncertainty. But historically, post-election periods see a return to stability as the political landscape clarifies. The market has likely already priced in some optimism around the upcoming elections, so excessive volatility may be less likely.

Most experts do not believe that the ‘Sell in May and Stay Away’ adage will hold true this year on the back of overall positive sentiment of the markets. While they do see some correction in the near term on the back of high valuation, but overall investors remain bullish on the outlook of Indian markets in the upcoming month.

Disclaimer: 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 taking any investment decisions.

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Published: 30 Apr 2024, 12:18 PM IST