May Likely To Be A Crucial Month For The Markets!
Before starting, we will walk down the memory lane and highlight the pointers that we discussed in our last editorial. We had said, "If Nifty negotiates and crosses 9,400 with a gap-up, we may see a good short-term rally towards 9,800-9,900 mark." And as you can see, we are almost there!! I hope our readers get benefited with our view this time as well.
While, it was not very long when the situation was quite chaotic across the globe and the fear of virus was completely dominating D-Street. Besides, we were also coming across a number of priests pontificating about the gloom and doom times, ahead of us. It’s important to understand as to why markets go up or down in the first place. They always go down when there’s more uncertainty because there’s nothing, the market hates more than that. This uncertainty also flamed VIX, which almost touched the historic high on March 24. So, with this rapid rise in volatility in the month of March, the markets were trying to discount the worst case probability and when the markets get a bad news that they had already expected, they are not much surprised.
We can see this observation reoccurring in the current scenario as well, when Nifty hit its bottom on the bad news post the announcement of the nationwide lockdown and similarly, the so-called fear index peaking on the very same day. Thus, this clearly indicates that bottoms are made on negative news flow as well as when pessimism is too high. American investor and writer Howard Marks says, “It is much easier to make money when the world is depressed, because when it stops being depressed, it’s like a compressed spring that comes back.”
March was really a dreadful month for investors/traders as the markets witnessed one of its sharpest falls in the history. Even the month of April had a somber beginning but as we know, change is the law of life and hence, the markets changed their direction. Consequently, the month of April turned out to be an ‘amazing April’. Nifty rallied almost 14.68 per cent in the month of April and the banking index is moving hand-in-hand as it has also gained 12.48 per cent. Further, if we look at it participation-wise, almost 98 per cent of the stocks of Nifty 50 closed in green for the month of April.
So, let’s find out what has helped the markets to rally? To begin with, the street suspects that we are about to discover COVID-19 vaccine after Gilead Sciences reported a positive data in Remdesivir trial for COVID-19. Secondly, US Federal Reserve kept its benchmark interest rate unchanged at the record-low level and said that it would continue with its aggressive policy until it is comfortable with the fact that the economy is back on its feet. Besides, many nations are also planning to ease restrictions.
We are about to enter the month of May with a high enthusiasm but nevertheless, as the old adage goes, investors ‘sell in May and go away’ during this time of the year. However, with market recovery on our hands, we expect May to be a very important one for traders/ investors. Also, it is going to be an important month since we might get an update from Prime Minister Narendra Modi regarding the extension of the nationwide lockdown in order to curtail the rapid spread of COVID-19. Apart from this, people are also awaiting a roadmap from the government to tackle the present situation and also, for opening up the economy.
We would like to conclude by saying ‘buy the rumour, sell the news’. With stimulus package and ease of restrictions on lockdown in sight and Nifty reaching almost a crucial level, we might see profit booking on actual news coming out.
