For most of the longterm investors or those who keep a close watch on international markets the term ‘Sell in May and go away’ will be very familiar. It’s an age-old saying in the international markets mainly in Wallstreet. In the past, investors used to have a belief that the performance of stocks would decrease in the month of May to October. So they plan to sell off their holdings in May and stay away from markets, rather than holding the stocks throughout the years. This helps them to sell off before the crash, and park their money in safe havens like gold and start investing by the end of October. Its believed that most of the companies are not performed well from May to October compared to November to April period. In the past decades it was giving good results with these strategies in the foreign markets.
Now let us see whether is it applicable in the Indian markets? From the past 10 years in Indian markets the month of May stayed bullish in 6 years, so we cant depend upon it.
So now we understood its not a kind of backtested or advanced strategy. But in the year 2020, it’s having great relevance. As we are currently in the worst economic crisis due to COVID 19, the bearish phase started from March across the globe. All of us have already witnessed one of the worst crashes of nifyt50 to around 7500 points in March. But most of the investment advisors didn’t suggest to sell off all the investments, because we were not getting the exact picture of the pandemic.
But towards the end of April Indian markets gave a bullish trend. It mainly happened because of huge foreign investment in Indian markets. Like the Facebook Reliance deal, investment by Chinese banks, and so on. This created a positive sentiment among retailers too and nifty shoot up to 9900 points. This made many retailers think of investing now or they would miss out on some golden opportunity. But according to technical analysis nifty is having a strong resistance at 9900, and this bullish trend is temporary as the lockdown continues.
OUR SUGGESTION TO INVESTORS
So considering the situations as of now, we can follow the age-old saying ‘SELL IN MAY AND GO AWAY’. Rather than selling off all your investments, we would suggest selling 50% of your investments and book the profits available now. even if you are bearing some losses now, you can buy more quantity of shares. It is possible to buy more shares of the same company as the prices will fall by the end of May. so try to sell off at least 50% of your investments now before the next crash in the month of May, as nifty is having support levels at 8500,7500 and 6100.
Also while choosing companies for investing now, select those companies which are having less debt to equity ratio, or zero debt. It’s very important now as it’s a lockdown and companies could not perform their business or generate any income. So try to invest in companies having enough ‘cash in hand’ or ‘cash equivalents’ or those companies which are able to function even in lockdown.