Timing the Market: Sell in May Strategy Amid US-Iran Tensions and Crude Oil Price Volatility

Market Sentiment Mixed as Investors Weigh US-Iran Conflict and Election Uncertainty

The popular stock market adage "Sell in May and Go Away" is often cited as a strategy to avoid historically weaker market performance during the summer months. However, analysis shows that this saying may not hold true for the Indian stock market, particularly in May. Data from Trendlyne reveals that the Nifty 50 index has risen in six of the last 10 years during May.

The ongoing US-Iran war, which has entered its third month, remains a key overhang for the market. The disruption to the Strait of Hormuz, a critical chokepoint accounting for 20% of the world's energy needs, has led to a sharp increase in oil prices. As of 1 May, Brent crude futures for July were 0.8% at $111.29, while West Texas Intermediate futures rose 0.4% to $105.44, positioning for a weekly rise of 6% and 12%, respectively.

Crude prices are likely to be a deciding factor for the markets, with experts warning that a prolonged rise in prices could jeopardize India's growth story in the short to medium term. Kranthi Bathini of Wealthmills Securities notes that crude is the "joker in the pack" and can hurt the rupee, inflation expectations, fiscal balances, and margins in several sectors.

Read also: Treasury Yields Experience Largest Increase in Two Weeks Following Release of Labor Market Data

Analysts, however, do not believe that investors must "Sell in May" and not look back. Experts argue that while the US-Iran conflict and elevated crude prices have raised India's macro risk, it is not a market where investors should exit quality equities in panic. Harshal Dasani, Business Head at INVasset PMS, notes that volatility will likely remain a key feature of the market amid mixed signals around the US-Iran war.

A decisive end to the conflict can spark a sharp rally, while a prolonged rise in crude prices may cap the upside in indices and put pressure on sectors dependent on imported raw materials. Conversely, a meaningful de-escalation in West Asia can trigger a sharp relief rally.

The broader outlook is not bearish, but investors should expect a wider trading range instead of a one-way rally. Bathini suggests that this is a "buy on dips, sell on rallies" kind of market, requiring investors to closely track global developments and stay nimble with their positions in the short to medium term.

The upcoming elections in West Bengal may also provide some near-term positive trend, particularly if the BJP's projected breakthrough is validated on 4 May 2026. However, Kotak Institutional Equities (KIE) notes that the durability of any rally will be tested quickly, as the trajectory of crude oil remains the single largest short-term risk variable.

Read also: US-Iran Tensions Spark Uptick in Oil Prices Amid Global Market Decline