Do’s & Don’ts for Muhurat Trading

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  • October 27, 2021
Do's & Don'ts for Muhurat Trading

The festive season in India lasts a couple of weeks and culminates in the most auspicious occasion of all, Diwali – the festival of lights. This is a time considered benevolent and favorable for indulging in important financial decisions, which are expected to offer future gains and general prosperity. It is no surprise to see an influx of IPOs being launched during this time, as business firms too desire to capitalize on the auspiciousness of the occasion and the eagerness of the investor community.

While Diwali is a holiday all over the country, the BSE and NSE make a special exception and permit a muhurat trading session in the evening. ‘Muhurat’ means an auspicious moment and this evening’s trading session is conducted to please the goddess of wealth – Lakshmi. Let us examine some of the dos and don’ts for the muhurat trading session

Dos For Muhurat Trading

  • Token Purchases

Both as a symbolic gesture and as a means of entering the equity market, investors can make a token purchase of an initial investment that can bring prosperity and a decent return on investment. This is deemed the right time for new investors to enter the equity market for practical purposes as well. 

This is mainly because the market is, typically, less volatile on the muhurat trading session due to the trend of traders preferring to buy stocks rather than selling them off. 

  • Invest In Blue Chip Stocks

Another important thing to do for muhurat trading is to buy reliable and quality stocks. While most of the large-cap stocks usually trade at higher valuations, especially during this time, it is advisable to add durability and stability to your portfolio by choosing blue-chip stocks for the long term.

  • Portfolio Restructuring and Optimization

Diwali time is also deemed ideal for reflecting on the year gone by and making new beginnings. Investors are encouraged to assess the performance of their portfolios and reshuffle based on new goals and investment horizons. 

You can also look to diversify your portfolio by looking at stocks of consumption-based companies. By identifying the right sectors (for example FMCG) and/or sub-sectors (like rural consumption) that have been riding on double-digit growth rates, you can pick stocks with a longer term of investment in mind.

 One of the recommended things to do for muhurat trading is to research companies that act as inputs (raw materials, production enhances, tools providers) to the consumption-based sectors, as the potential for growth in such companies is deemed higher. These could also include associated logistics suppliers. 

Now that we have discussed the dos for muhurat trading, we should consider the don’ts for muhurat trading so that you can avoid the common mistakes made by people.

Don’ts For Muhurat Trading

  • Don’t Place Large Orders

The Muhurat trading window is rather short (lasting about 1 hour) and there is always a liquidity constraint. Hence, it is strongly recommended to avoid placing any large orders.

  • Don’t Lose Focus

It is easy to get carried away due to the excitement of the moment and the occasion. This is why it is extremely important to stick to the basic principles. An auspicious day does not automatically translate to assured gains. Follow the above-provided list of dos and stick to token purchases with a consideration of the long-term investment period.

  • Avoid Falling Prey to Rumors

As should always be the case, each investment must be backed by careful research and sound consultation. Never allow rumors, speculations, and unverified tips to guide your choices while investing in stocks or any nature. 

Another don’t for muhurat trading involves avoiding trading in options.  This high risk and the possibility of loss are likely to leave a bitter taste in your mouth. Experts advise sticking to stable and reliable large-cap blue-chip stocks and also advise against indulging in intraday trading.

Is intraday allowed in muhurat trading?

There is no formal rule that prohibits intraday muhurat trading and many experienced investors indulge in it. However, the key here is proper knowledge and experience. Most average investors are advised to avoid intraday muhurat trading due to the extremely short trading window and volatility in market liquidity, which requires extra attentiveness and exact precision to transact and close your trades by ascertained time. Hence, investors are better advised to purchase smaller quantities of well-established stocks instead and retain them for longer durations.

Conclusion

Muhurat trading is an auspicious and practically favorable time for new investors to enter the equity market. It is also a good time to invest in reliable shares to be held over the long term for robust returns. Use this occasion to kick-start a prosperous trading journey, and by following the provided list of dos and don’ts for muhurat trading avoid the common mistakes which can sour your experience.

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