Risk is Relative, But Caution is Universal

ELL in May and go away' is an old stock market adage.

- RAJAS KELKAR

Studies over five decades on the US S&P 500, a benchmark index of top 500 American companies, show that returns were an average of 4% lower between May and October than between November and April in a year. That is primarily a case applicable to US markets due to local factors.

This stock market strategy also affected financial markets that were dependent on global capital flows.

Over the past two years, India's stock markets have been less dependent on foreign capital flows as significant money has moved into equities from domestic retail and institutional investors. Domestic investors are bound to buy only Indian equities. As a result, their steady direct and indirect monthly flows put a cushion at the bottom. Even if foreigners sell, locals will not. They may not buy more equity only if valuations are rich. Now, the most significant risk to Indian markets is valuation. Both foreign and domestic investors think Indian markets are richly valued compared to their profit growth prospects.