‘Sell In May’ Plays Out In Mid Caps

‘Sell in May and go away’, the adage about the seasonal decline, is proving to be true for mid caps.

The NSE Nifty Midcap 100 Index has declined 8.5 percent so far this month, making it the worst May for it in 12 years. Just five out of its 100 constituents have returned gains. In fact, barring Nifty Bank, all other sectoral indices have declined this month. As a result, India’s volatility index surged over 16 percent.

The mid-cap benchmark is now oversold with its relative strength index below 30. While that suggests a possible rebound, it’s likely to be a temporary respite.

“We can expect a dead-cat bounce for the market after the sharp fall in May,” said Shrikant Chouhan, senior vice president - technical research, at Kotak Securities. That will be a temporary recovery before the original downtrend resumes, he said.

The Fundamentals

The Nifty Midcap 100 Index is trading at 20.3 times its one-year forward earnings, Bloomberg data showed. That compares with the five-year average of 19.4 times. For individual stocks, valuations rose or fell depending on the price and revision of earnings expectations.

The volatility or a fall in the market will provide a buying opportunity, Mehraboon Irani, managing director and chief executive officer at Gini Gems Consultants and Investment Advisor, said. If the frontline indices correct another 5 percent, then the midcap index can fall another 10-15 with individual stocks seeing higher cuts, Irani said.