Should Nifty bulls ‘sell in May and go away’, not return until election result day?

With Nifty hitting a hat-trick of three consecutive months of positive returns in April, nervousness is increasing on Dalal Street with naysayers reminding investors of the ‘Sell in May and go away’ trading strategy.

The month begins with the US Fed meeting outcome on May 1 in which traders will be closely looking for hints on the projection of rate cuts in 2024. While a rate cut is unexpected now, the market is hopeful that the FOMC will issue at least two 25 bps rate cuts by the end of the year.

For the rest of the month, voting patterns and political statements will keep the rumour mills busy before the Lok Sabha election results are announced on June 4.

While analysts say that all the positive outcome of the election is already priced in and that the market now remains range-bound, historical data indicates that the summer month has typically favoured the bulls.

In the last 10 years, Nifty has closed in green 7 out of 10 times in May with an average return of 2.3%. May 2014 was the best one for the index in recent times when Nifty zoomed nearly 8% while the worst one was seen in May 2022 with a drop of around 3%.

While FIIs have been investors 40% of the time, DIIs have been bullish on 8 out of 10 occasions.

When it comes to sectors, we have seen the FMCG index closing in green on 9 occasions with an average return of 3.1% while banks and auto have ended in the green zone 8 times with an average return of 3.6% and 4.3%, respectively.

Pharma has closed in the red on 6 occasions with an average negative return of 3.1%.

Current technical and derivative analyses support the notion of Nifty reaching all-time highs of 23,000 and even 23,500 in the coming month. “The Relative Strength Index (RSI) is hovering around 60, indicating strong momentum in the index. Furthermore, the price is finding support from the 20-day Exponential Moving Average (EMA) and is trading above all key EMAs, which underscores bullish sentiment,” said Mandar Bhojane, Equity Research Analyst, Choice Broking.

From a trading perspective, it’s advisable to view any dips in Nifty as buying opportunities, given that key daily moving averages are within range, likely to attract buying interest, he said.

Analysis of Nifty Put options indicates a concentration of Open Interest (OI) at the 22,500 level, hinting at potential support during the ongoing expiry. Conversely, significant OI concentrations on the Call side are observed at the 23,000 level.

Any news related to the outcome of the Lok Sabha election may, however, keep the market on tenterhooks. Analysts suggest that investors should capitalize on buying opportunities during Nifty dips.

(Data: Ritesh Presswala)

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)

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