markets: Can markets defy historical trends and thrive in May amid global challenges?

Economic Times

02-05-2025

As the month kicks off, the positive mood seen in April hasn't changed. Foreigners have pumped over ₹38,150 crore in the second half of April after remaining sellers in the first part, helping the Sensex and Nifty gain 5% in April. Also, there has been no adverse tariff related news flow the past few days.
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Mumbai: Among the oldest Wall Street adages is "Sell in May and go away," although stocks haven't really stuck to that predictably dystopian script lately. Instead, risk assets have often advanced in value through the month.This time, however, investors are unwilling to brush aside the old jungle proverb entirely amid the ebb and flow on tariffs, their impact on the US economy, and the simmering summer of discontent in the Kashmir Valley.As the month kicks off, the positive mood seen in April hasn't changed. Foreigners have pumped over ₹38,150 crore in the second half of April after remaining sellers in the first part, helping the Sensex and Nifty gain 5% in April. Also, there has been no adverse tariff related news flow the past few days.On Wednesday night, Wall Street indices eked out gains, erasing early gains after the US GDP in the first quarter contracted by 0.3% - the first drip since 2022 - raising hopes the US Federal Reserve might cut interest rates sooner. The S&P 500 and the Dow fell over 2% earlier in the day. Indian markets were shut for trading on Thursday for Maharashtra Day.Against this setting, the market seems poised to be starting trading in May on Friday on a positive note. Moreover, historical data show May hasn't typically been a weak month for Indian markets and have delivered average returns of over 2.5%.But, analysts warn that a runaway rally may be unlikely."I don't see a significant upside at the broader index level in the immediate term," Siddarth, Bhamre, Head - institutional research, Asit C Mehta "At the index level, we might see some trimming, but recent trends don't necessarily support a major correction. In fact, the pattern in recent years shows that May has been delivering positive returns more often than not," he added.From 2013 to 2021, BSE's Sensex logged a nearly nine-year streak of positive returns in the month of May."I believe we might now see the market range between 22,000-22,500 on the lower side and 24,500-25,500 on the higher side," he said.With several earnings already out and more to come, investors are closely tracking how companies are projecting growth in the coming quarters. At the same time, global developments particularly around tariffs and geopolitical tensions are adding another layer of uncertainty.'Going forward, market movement will largely depend on how corporate earnings shape up and how the tariff situation unfolds,' said Gautam Duggad, head of research — institutional equities at Motilal Oswal Financial Services 'Geopolitical tensions, especially any escalation between India and Pakistan, could also impact sentiment, depending on developments at the border. At the same time, expectations around the monsoon will begin to take shape as we approach May,' he added. Suresh Soni, CEO of Baroda BNP Paribas Mutual Fund, said, aid the results have been muted and the guidance cautious so far; but the monsoons are expected to be normal. SECTORS Bhamre recommends investors to park their money in large private banks such as ICICI Bank and HDFC. He also recommends investing in life insurance firms and paint companies. With some of the tariff concerns easing, Duggad suggests considering IT stocks and banks. He also feels, consumer discretionary and industrial appear more attractive now, as there are signs of rising discretionary and consumption spending. Duggad sees stocks such as Indian Hotels, ICICI Bank, Titan and Trent faring well going ahead.According to Soni, with uncertainty around US tariffs investors should bet on domestic sectors like BFSI, consumer goods, healthcare (like hospitals), and industries such as power, cement, and telecom. In contrast, sectors like IT and metals, which are more exposed to global risks, are seen as riskier bets.Soni noted that the recent market rebound followed an unusual stretch of five consecutive months of negative returns for the Nifty. He said patience will be the key to navigate this market. 'As Charlie Munger said: 'Big money is not in the buying or selling, but in the waiting. Stay invested for the long-term and let the compounding work for you,' said Soni.