Nail-biter! Nifty bulls have edge over bears in May. Can they reign supreme this time?

Benchmark indices Sensex and Nifty gained over 3% each in the month of April, but are still marginally down on a year-to-date basis.

So far this year, Indian equity markets have been among the worst performers compared with peers. For instance Nasdaq is up about 16.8% so far this year, Nikkei has risen 10.5%, the Shanghai composite jumped 7% and Hang Seng Index rose by a marginal 0.57%.

If we look at the historical data, Nifty has given positive returns seven out of 10 times in the past decade. Only in 2018, 2021 and 2022, Nifty has delivered negative returns.

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Data also shows that investing in May has produced average double digit return by calendar year end, 83% of the times.Going forward, analysts expect the trend reversal in April to sustain into the month of May with Nifty expected to head towards 18,500. Foreign portfolio Investors (FPIs) turning net buyers for the past two months might also add to the positive sentiments.

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FPIs sustained their buying into the month of April after turning positive on Indian markets in March. They have invested about Rs 8,460 crore in April after pumping in Rs 13,063 crore into Indian equities in March, Stockedge data showed.

Despite the buying for the past two months, FPIs have been net sellers so far this year at Rs 14,158 crore, which partly explains the relative underperformance of Indian markets. Investors were also taken aback by the Adani-Hindenburg saga.

The benchmark Nifty has managed to hold the March low of 16,800 and ICICI Direct expects the current rally to have more legs in the index.

The brokerage sees Nifty to gradually head towards 18,300-18500 in May in a non-linear fashion with strong support at 17,200.

“In India, in April, we had a surprising pause in the RBI rate hike policy, which is positive and below expected FYQ4 results. Both factors are likely to play a crucial role in the future structure of the stock market,” said Vinod Nair, Head of Research at Geojit Financial Services

“The one-year forward P/E valuation of India has reduced by 10% in the last year from 20x to 18x, which is just a notch above the 7-Yr average of 17x. Along with that, the future trend of India’s valuation will depend on two key factors: the earnings outlook and global stock market sentiment,” he said.

The biggest risk for markets in the current uptrend is a further downgrade in earnings, according to analysts. In such a situation, they believe that the companies most impacted by a downgrade in earnings will be those having high exposure to the global economy, like exports.

Technically, Nifty took support near the 200 day SMA or 17650 (Simple Moving Average) and bounced back sharply. It has also formed a long bullish candle on weekly charts which is largely positive.

“As long as the index is trading above 17900 the uptrend formation is likely to continue and could move up till 18150-18250. On the flip side, below 17900, traders may prefer to exit from the long positions,” said Amol Athawale, Technical Analyst, Kotak Securities.

(Data inputs from Ritesh Presswala)

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)