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After a successful April (assuming no unusual negative things happen in the next two trading sessions), the question doing the rounds in market circle is “Will it be Sell in May and go away.”
While historical studies in the US have revealed that stocks tend to underperform in the period between May and October, the reverse is true between November and April.
In India too, May has some significance in trading pattern, as in seven out of the last 10 years, the S&P BSE Sensex ended on a negative note.
Buying interest
Renewed buying interest by foreign institutional investors in the last few weeks, invigorated a fresh rally in benchmark indices, as the country’s major concern pertaining to the widening current account and fiscal deficits would be addressed on the back of sharp fall in crude oil and gold prices.
Besides, expectation of a cut in the repo rate by 25 bps to 7.25 per cent in the ensuing RBI monetary policy review meeting on May 3 also lifted the spirit of market men. Given the drop in headline inflation below six per cent levels along with moderation in the commodity prices particularly crude oil and gold, the RBI may opt to cut interest rate. Lower interest rates play a vital role in reviving the investment demand and thus economic growth.
However, is it time to book profits?
According to HSBC Global Research, a diminishing window for reforms, slackness in corporate earnings and a more protracted recovery make India ‘more unfavourable’ within the region.
HSBC, which lowered India to underweight from neutral with a Sensex year-end target of 20,700 (21,700), said: “Unfortunately, corporate earnings are not keeping pace. A slowing economy and movement of money from corporate and retail India (rational fuel prices and higher taxes) to the exchequer means earnings will likely disappoint. We have already seen a three per cent cut to earnings in the last two quarters with the bulk of the cuts in the telecom, materials and industrial sectors. We expect to see further earnings downgrade as the Street expectation of a 15 per cent corporate earnings growth for FY-14 appears too optimistic.”
Besides, there is also widespread fear in the market circle that whenever the price of gold and oil crashes, a recession almost always follows. Even in 2008, the fall in both crude oil and gold prices in July was followed by the worst financial crisis in the US that pervaded to other economies too.
Factors to watch:
RBI to meet on May 3 for Monetary Policy
Auto, cement companies will announce monthly sales figures on May 1 or 2
Companies such as IDFC, Bharti Airtel, Kotak Mahindra Bank, ACC, Ambuja Cements, Grasim and JP Associates will announce their financial performances this week.
HSBC India Manufacturing PMI, which gauges the business activity of India's factories for April 2013, will be declared on May 1
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