'Sell in May' theory holds true: Dalal St loses Rs 4 lakh cr

The years-old stock market adage, ‘sell in May and go away’, seems to be holding true for the third year in a row, as Dalal Street has lost close to Rs 4,00,000 crore of wealth and the benchmark Sensex has fallen by over 1,100 points so far this month.

This would be the third consecutive year of a large-scale plunge during May for the stock market, as also for many global markets, the historic data suggest.

Incidentally, the stock market has seen wealth erosion of about $410 billion in the past two years, beginning May 2010, and more than half of this loss ($210 billion) has been during the months of May.

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[caption id=“attachment_323019” align=“alignleft” width=“380” caption=“The strategy says that an investor can earn better returns by investing in stocks during the ‘best six months’ of a year (from November to April) and then selling the stocks in May and switch to bonds for the worst six months (from May till October).”]  [/caption]

Since the beginning of May 2012, the stock market wealth, measured in terms of total value of all listed companies, has fallen by about Rs 4 lakh crore (close to $70 billion).

The losses could further mount if a downslide continues in the market, which has already seen the Sensex falling by 1,100.99 points so far this month. The Sensex currently stands at 16,217.82 points, while the stock market wealth is holding just over $one trillion (about Rs 58 lakh crore).

In the previous years also, the month of May has been mostly bad for the stock market globally, but the Indian markets had witnessed mostly alternate bouts of gains and losses during the month of May till 2009.

During the May 2011, the stock market wealth had declined by about Rs 1.8 lakh crore (about $60 billion), while the loss was about Rs two lakh crore ($80 billion) in May 2010.

However, the market had gained smartly by about Rs 13 lakh crore ($285 billion) in May 2009, after losing close to $160 billion in May 2008.

Prior to that, the markets had gained $90 billion in May 2007 and lost $98 billion in May 2006. The month of May witnessed positive moves in 2005, 2003 and 2001 also, while losses were noticed during May months of 2004, 2002 and 2000.

However, the gains during May have mostly been lower than other months, even during those years when the month of May has seen positive movements.

The ‘sell in May’ theory was first propagated for the US market in the ‘Stock Trader’s Almanac’, first published in 1966 as a compilation of historic patterns and calendar-based seasonal trends for the stock movements.

The strategy says that an investor can earn better returns by investing in stocks during the ‘best six months’ of a year (from November to April) and then selling the stocks in May and switch to bonds for the worst six months (from May till October).

PTI