Sun. Jun 16th, 2019

sensex returns: Sell in May, play in June! Hot summer is about cool returns on D-Street


NEW DELHI: If the so-called Halloween indicator tells you to sell in May and spend your summer staying in cash, Indian market history says something else for June.

In last 20 years, the BSE Sensex has ended June with gains on 14 occasions; having delivered 2 per cent and more returns on eight occasions and over 1 per cent in 11 other instances. Out of six instances, when it fell for the month, the drop was more than 1 per cent only on three occasions.

Domestic stocks are currently ruling at record high levels, and the risk-reward for them look fairly unfavourable, thanks to poor macros, global growth concerns and recent earnings downgrades.

This year, all through June the market will be building up for the full Union Budget under India’s first woman finance minister even as it digests a sudden drop in March quarter GDP growth. A possible interest rate cut by RBI this week, if it comes, might help cushion the impact of the negatives.

“June is a month of the onset of monsoon. Most of the time, monsoon forecasts are ‘normal’, which boost market confidence. In addition, March quarter results are generally better than rest of the quarters for many industries. In few instances, the month also followed general election results; this year being one such case,” said G Chokkalingam, founder and managing editor, Equinomics Research.

Last June, Sensex rose 0.29 per cent while in 2017 it fell 0.72 per cent. But in last 10 years, there have been many instances when the index has delivered high returns in June. They included a 1.24 per cent return in 2016, 1.89 per cent in 2014, 7.47 per cent in 2012, 1.85 per cent in 2011 and 4.46 per cent return in 2010.

The 30-pack surged 7.13 per cent during the month in 2005, 13.41 per cent in 2003, 3.81 per cent in 2002, 7.11 per cent in 2000 and 4.47 per cent in 1999.

The worst June month in Sensex’s history were in 2008 (when it fell 17.99 per cent) and 2001 (when it slipped 4.82 per cent). It fell 1.84 per cent in June, 2013.

June snip 1

Besides RBI’s rate cut, the market is anticipating a series of measures from the government in its first 100 days in power, said Rusmik Oza, Head of Fundamental Research, Kotak Securities.

The Modi government in its first cabinet meeting last week approved a proposal to extend the benefit of Rs 6,000 per year under the PM-KISAN scheme to 14.5 crore farmers in the country.

The Cabinet also approved the Pradhan Mantri Kisan Pension Yojana under which small and marginal farmers will get a minimum fixed pension of Rs 3,000 per month on attaining the age of 60 years. Besides, the Cabinet approved a new scheme that assures a minimum monthly pension of Rs 3,000 to all shopkeepers, retail traders and self-employed persons after attaining the age of 60 years.

These moves are expected to give consumption a boost.

News reports suggest Finance Minister Nirmala Sitharaman will present the full-year Budget on July 5 and the market may start building up for it all through June.

“Expect the market to remain at an elevated level and inch up further in next two months as we have the RBI meet in June, followed by the Union Budget sometime in July. Likely news flows from the government side coupled with a fall in crude prices and softening bond yields can take Nifty closer to 12,500 level faster than expected,” Oza said.

Chokkalingam said there could be build up of expectations from the government ahead of the Budget amid weakening macro indicators, which could drive the market. The expert feels midcap and smallcap stocks to do well.

Intensifying trade war globally, tensions in the Mideast that can have an impact on crude oil prices and any fresh problem in India’s debt market could be potential spoilers to watch out for over the next few months.

Poor monsoon rains could be another negative the market is talking about, but historically D-Street has never shown any positive correlation with rainfall outcome even though the monsoon showers are critical for about half of India’s farm output that comes from summer shown crops like sugar, paddy, cotton and coarse cereals.

About 70 per cent of the Indian population depends on farming, either directly or indirectly. Around 58 per cent of the total employment in the country is through agriculture. The agricultural sector contributes to around 18 per cent of India’s GDP.





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