Sell stocks in May and go away: Here's why it may be a bad strategy in 2024

The government, too, is hopeful that the bull-run in the Indian stock market will continue. PM Modi recently said in an interview that Indian stock markets will break all previous records on June 4

The 'Sell in May and Go Away' may turn out to be a bad market strategy for the remaining trading days of May 2024 if the Lok Sabha election outcome on June 4 is on expected lines, and the Narendra Modi-led National Democratic Alliance (NDA) secures a third term.

Though most political pundits and market experts are keenly eyeing the number of seats the NDA 3.0 will eventually bag in the Lok Sabha, they say continuity of the reform process/policies and the full budget that will matter most to the markets over the next few months. 

This, they believe, is likely to keep the market momentum strong, provided the other domestic economic indicators and global cues remain supportive. 

In this backdrop, selling large-cap stocks at the current levels, according to G Chokkalingam, founder and head of research at Equinomics Research, is not a good strategy as the trailing price-earnings (PE) of Sensex is still in a comfortable zone and India’s growth story looks promising.

“In case the market falls or sees a major knee-jerk reaction that would be a good opportunity for the medium-to-long term investments. India’s growth story, massive entry of new investors and growing dominance of domestic mutual funds will lead to a structural bull-run for another four years,” he said.

The government, too, is hopeful that the bull-run in the Indian stock market will continue. PM Modi recently said in an interview that the Indian stock markets will break all previous records on June 4 post the election outcome is known. This follows a statement by Amit Shah, Union Home Minister where he advised investors to buy stocks before June 4.

Peek into history

Traditionally, the month of May is considered bad for equity markets, especially in Europe and the US, as fund managers typically go on a long summer vacation – and hence the adage 'Sell in May and Go Away.'

In India, however, the last decade has been mostly good for the stock markets in May. Since 2013, the S&P BSE Sensex has given a positive return in May, except in 2020 when Covid-related uncertainties took center-stage and dented sentiment and then again in 2022, shows data.

In May 2014, the Sensex surged 8 per cent – the biggest percentage-wise gain in May in the last decade – after the Narendra Modi-led National Democratic Alliance (NDA) got an overwhelming mandate post the general election.

Taking an action on the portfolio, according to Vaibhav Sanghavi, chief executive officer at ASK Hedge Solutions, for a long-term investor does not make any sense despite the Lok Sabha election outcome-related uncertainty.

“From a long-term perspective, ‘India story’ remains strong and investors, in my view, shouldn’t be taking any view on a short-term event. Whereas, for a shorter term trader, being a student of risk, it is always advisable to stay light going into an event, no matter how certain the outcome may be,” he said.

Thus far in May 2024, the Lok Sabha 2024 election-related uncertainty has kept the sentiment in check with the S&P BSE Sensex giving a marginally negative return during this period. The S&P BSE Midcap and the BSE S&P Small-cap indices, however, have outperformed.

“We would be happy with continuity to make India a dominant block of manufacturing excellence and stable policies that encourage growth for companies and individuals. We need capital for our growth and simpler tax regimes for global long-term capital is welcome. We would be happy to see investors being encouraged by reasonable rates and simple tax rules harmonised across asset classes,” said Kalpen Parekh, MD and CEO of DSP Mutual Fund on his expectations from the full budget to be announced later in 2024.