Should investors stick to the adage: ‘Sell in May and Go Away’?

Record high inflation and the growing hawkish tones of global central banks, including the Reserve Bank of India, has derailed recovery in the equity markets.

The benchmark Sensex, for instance, had jumped about 15% from its March lows to hit a high of 60,612 on April 4.

However, the RBI’s hawkish policy, along with the US Fed chairman’s hint at a 50-bps rate hike in May weakened the bulls.

Besides, persistent geopolitical tensions and lower-than-expected Q4 result of India Inc, so far, also dented the sentiment.

Consequently, the benchmarks fell about 6% from their April highs and ended the previous month with a loss of 2.5% on a month-on-month basis.

Now, as we head in May, the old adage of ‘Sell in May and Go away’ is unsettling investors. To be sure, this saying has often proved true for the US and European markets.

Data since 2010 shows Indian frontline indices have given positive returns on seven occasions in the month of May.

Last year, Nifty50 and S&P BSE Sensex rose 6.5% each during the period as global central banks continued with their dovish stance.

However, the May of 2022 may be different.

Global central banks are withdrawing liquidity, and China is seeing its worst Covid outbreak yet. Analysts believe that if China – known as the factory of the world — continues with its ‘zero-Covid policy’, it will aggravate global supply chain disruptions further.

Speaking to Business Standard, VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services, monetary policy tightening, soaring inflation are likely to keep markets volatile. He suggests investors should avoid buying aggressively amid uncertainty, and use sharp correction to buy high-quality names.

Back home, indicators aren’t favouring the bulls as well. Resurgence of Covid-19 and rising inflation are the immediate threats.

While India’s biggest initial public offer of LIC may bring short-term respite for investors, analysts caution that markets cannot be immune to the pain seen in global markets.

According to Ambareesh Baliga, independent market analyst, LIC IPO is likely to act as a catalyst to ‘Sell in May and go away’; He expects Rs 21,000-crore liquidity drain due to the IPO, but muted earnings growth, rate hike likely to dull markets in May.

Against this backdrop, technical charts indicate that the Sensex could move in a broad range of 54,500 to 60,500.

Investors can expect significant support around 55,650-odd levels, and resistance around 59,350.

Nifty50 is expected to move in the range of 16,200 to 18,300, with a support at 16,000 levels and resistance at 17,550.

Meanwhile, investors will track Q4 report card of HDFC, Britannia Industries, Tata Consumer, Inox Leisure, Hero MotoCorp, Tata Steel, Titan Company, and Tata Power in the holiday-truncated week.

They will also await the launch of LIC’s mega IPO due on Wednesday. Globally, US Federal Reserve and Bank of England will announce their interest rate decisions.