Looking historically,
Sensex has given negative returns in even years in the month of May. Is history
going to repeat itself?
There is an old Wall
Street axiom that stock market investors should sell in May and go away. This
refers to the historical underperformance of stocks in the US markets. How
significant is this in Indian stock markets at current juncture?
To say the least, we are in a big mess. As we
all know that the state of the domestic stock market is largely decided by the
foreign investors. If they are not feeling good about things, the Indian stock
markets are not likely to go anywhere. The enthusiasm that propelled Indian
markets at the start of year 2012 is fizzling, as investors see big challenges
ahead but there is very little confidence that policymakers would be able to
manage them well.
There are a number of domestic headwinds as of
now which are pushing foreign investors to view the country with a negative
bias. The biggest risk as of now is the price of crude oil. Weak investment
cycle is another big concern. Experts say that this may not only affect
consumption, but also the future employment potential. That could in turn
affect economic growth. There is concern over fiscal deficit. With subsidies
rising, the possibility of fiscal deficit coming under control is under
question. The rupee is under pressure because of the current account deficit
and capital flows, which have been volatile.
There has been a significant slowdown in terms
of FII flows and GAAR is also adding to the confusion. So FII flows will
continue to be weak due to local issues as well as due to global liquidity. All
the trouble seems to be concentrated in Spain these days. Other European
countries are not doing too well either. That will certainly have an impact on
the Indian markets as well.
But there are a few positives as well. As far
as valuations of Indian markets are concerned, the valuation is now comfortable
at 13x FY13 earnings, which is close to the historical average. On the
companies side the balance sheet are much stronger than they were in 2009.
Softening of commodity prices, manageable inflation levels and a pick-up in the
investment cycle can lead to an upside.
Looking historically, Sensex has given
negative returns in month of May in even years. In the month of May, Sensex
fell 4.81 per cent in 2000, dipped 6.36 per cent in 2002 and nosedived 15.8 per
cent in 2004. The trend continued in later years as well. Sensex dipped 12.26
per cent in 2006, 5.04 per cent in 2008 and 3.5 per cent in 2010 in May. What
is going to happen this May? Will history repeat itself?
If we look technically, 5350 has acted as a
strong supply level for Nifty on the higher side. Downward targets in this case
are 5,036 and 4,848. Key medium-term support for the index remains at 4,950 and
investors need to get worried only if it goes on to record a strong weekly
close below this level.
(Published in Money
Mantra)
