The Week Ahead: Sell in May and go away

We head into May after having seen a global and domestic rally, which saw the Nifty gain 4.13 per cent, while the Bank Nifty jumped 12 per cent for the April series. The markets have staged a strong comeback on the back of being heavily oversold, improving macroeconomic conditions like a fall in inflation, a fall in commodities -- particularly oil and gold -- and improvement in global sentiment, with money moving into equities as a preferred choice of investment.

 

The main event locally would be the RBI policy meet. Markets have already priced in a possible repo rate cut of 25 bps (basis points). The yields on the 10-year government bonds also indicate the same and were trading at 7.75 per cent, the lowest in almost three years.

 

However with markets, particularly banking stocks, having moved up very sharply, caution should be the buzzword as most good news already seems to have been discounted, and once the event is over, we could see profit-booking/selling being the theme.

 

Technically, the Nifty gained 1.53 per cent for this week and closed at 5871. It now faces resistance at 5970, while support comes at 5780 levels. The high beta Bank Nifty ended the week with gains of 2 per cent to finish at 12,533 levels. It now faces resistance at 12,800, while support comes at 12,100 levels.

 

Globally, after the recent strong sell off, gold rebounded back sharply, while oil also gained some ground. The US and Japanese indices continue to see new highs as institutional investors pour more money into both these large markets.

 

Historically, the adage of 'Sell In May and Go Away' has been proved right too many times to be ignored and may again prove right locally, as rumours of 'political disarray' again seem to be making the rounds over the weekend over the 'coal scam'. Report leakage and expectation of a furore in Parliament with disruption of proceedings seems inevitable. With the passage of important bills being held up, markets would tend to be cautious and chances of any upside seem capped.

 

Globally too, after three months of strong rally, any earnings disappointment could see some sharp profit-booking. Eurozone problems may have seen some temporary postponement, but any negative surprises could again catch the market unawares.

 

For the week gone by, we witnessed the inevitable 'short squeeze', with the Nifty ending the April series above 5900, levels which looked highly improbable two weeks back.

 

Results from the large-cap stocks seemed mixed with good numbers from most private sector banks, while Maruti surprised the Street with excellent profits. However, Wipro, Hero Motocorp and some other steel and metal companies continued to disappoint.

 

Tracking the 'A' group gainers, we had Jet Airways gaining 21.35 per cent, Indiabulls Real Estate jumping 19.2 per cent, while M&M Financial Services rose 14.51 per cent. The top three losers were Wipro (13.52 per cent), HCL Tech (10.36 per cent) and TCS (7.86 per cent).

 

The main gainer of the weakness in gold and oil would definitely be the government, as by default, the current account deficit gets reduced. However, with politics again raising its ugly head, governance and policy paralysis could again grip the ruling party and wash away all the gains. Caution should be the key as we head into the month of May with profit-booking on rallies the buzzword.

 

Disclaimer: Sanjeev Bhasin is an independent market analyst. The opinions expressed here are the personal opinions of the author. NDTV is not responsible for the accuracy, completeness, suitability or validity of any information given here. All information is provided on an as-is basis. The information, facts or opinions appearing on the blog do not reflect the views of NDTV and NDTV does not assume any responsibility or liability for the same.