Market Rally Expected to Continue in May, Bolstered by Strong Domestic Economy and Reelection Prospects

Indian stock markets are expected to continue their upward trend in May, supported by economic growth prospects, government re-election potential, and domestic investor participation. The BSE Sensex has reached record highs and the market capitalization of BSE-listed companies has surpassed Rs 400 lakh crore. Factors driving the rally include positive market sentiment, strong corporate earnings, and expectations of rate cuts. While the adage "Sell in May and Go Away" is popular, statistics do not strongly support its effectiveness. Experts suggest focusing on long-term wealth creation and investing in India's growth potential rather than short-term fluctuations. The outcome of the general elections, domestic earnings, and global economic data will be key factors to watch in the near term.

Stock markets may continue their winning run in May after registering gains in the past three months as investors' sentiment are upbeat amid India's promising economic growth prospects, the current government's potential re-election in the ongoing polls and robust participation from domestic investors.

The 30-share BSE Sensex had declined 0.67 per cent in the month of January this year.

However, markets charted a strong recovery path from February onwards.

In February, the BSE benchmark climbed 1.04 per cent, while it jumped 1.58 per cent in March. In April, the bellwether index advanced 1.12 per cent.

''Overall, the markets are anticipated to maintain their upward trend, backed by robust inflows and participation from both domestic institutions and individual investors.

''Going forward, if the corporate earnings of the remaining companies display a positive sentiment then the markets are likely to continue their bullish sentiment,'' Arvinder Singh Nanda, senior vice-president of Master Capital Service Ltd, said.

''Markets have surged to record highs due to various factors. Firstly, the positive market sentiment, driven by strong prospects for the Indian economy, has bolstered investors' confidence.

''Expectations of imminent rate cuts have further encouraged investors to buy Indian stocks despite recent corrections. We forecast the Nifty 50 to maintain a positive bias, considering historical trends of rallies during general election years and projecting a gradual ascent,'' Suman Bannerjee, CIO of hedge fund Hedonova, said.

The BSE Sensex hit its all-time peak of 75,124.28 on April 9 this year. The index breached the historic 75,000 mark for the first time on the same day.

On April 10, the 30-share BSE benchmark settled above the 75,000 mark for the first time.

The market capitalisation of BSE-listed companies went past the coveted Rs 400 lakh crore mark for the first time on April 8.

''Despite concerns about high valuations since early 2024, midcap and smallcap stocks are surging. This momentum is likely fuelled by ample domestic liquidity and a positive outlook for the Indian economy.

''This outperformance by smaller companies mirrors trends seen in past mega bull markets globally, suggesting the Indian market could be in a similar growth phase,'' Sunil Nyati, Managing Director at Swastika Investmart Ltd, said.

On whether the strategy, ''Sell in May and Go Away'' will be in place this year, Bannerjee said, considering the historical data, it is evident that the traditional ''Sell in May and Go Away'' adage may not hold true in the current market context, particularly with the looming general elections outcome.

''While this strategy has been questioned in recent years, the market dynamics and the anticipation surrounding the election results suggest a potential rally rather than a correction in May. Moreover, the Nifty 50 has shown positive returns in the majority of May months over the past decade, indicating resilience and potential for further gains.'' In light of India's promising economic growth prospects and the expected uptrend in the stock market over the coming years, focusing on long-term wealth creation remains prudent, he added.

Therefore, investors should look beyond short-term fluctuations and maintain a steadfast approach towards capitalising on India's future potential in the equity market, Bannerjee said.

As per the strategy, an investor, who sells holdings in May and gets back into the equity market in November, avoiding the typically volatile May-October period, would be better off than an investor who stays in equities throughout the year.

Nyati said while the ''Sell in May and Go Away'' adage is timeworn, statistics don't necessarily confirm its effectiveness.

''This year, I believe the market will continue to rise despite global headwinds like rising US bond yields delaying interest rate cuts. Our strong domestic economy, with several domestic-focused sectors showing positive results, provides a counterbalance. Additionally, the current government's potential re-election in the ongoing polls acts as another tailwind,'' Nyati said.

Notably, Foreign Institutional Investor (FII) holdings in Indian equities are at record lows. Historically, FIIs tend to increase buying around elections. If this pattern holds, it could significantly fuel the current rally, Nyati added.

On the major factors to watch out for, Nyati said, ''In the near term, the Indian market's biggest driver will be the outcome of the general elections. Domestically, the next batch of Q4 earnings will also be closely watched.

''Globally, key factors include economic data from the US, particularly inflation figures, and the tone adopted by the US Fed Chair. Additionally, the geopolitical situation and FII flows will remain on market participants' radar.''

(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)