Diwali is one of the biggest festivals celebrated in India and it marks the beginning of a traditional New Year for Hindus. It is considered a highly auspicious period as most households indulge in purchase of cars, durables or invest in new assets like real estate & gold. For many businesses especially stock broking houses, Diwali marks the beginning of a new fiscal year. Stock brokers and traders commence the celebrations by performing a Lakshmi Puja at their premises and participate in the customary Muhurat Trading.
Muhurat trading in stock market
History & Significance
As denoted by the name, Muhurat trading is trading in stock markets carried out at a pre-specified auspicious time. Every year on Diwali evening, major stock exchange allow investors to trade for a given time duration which is pre-determined and notified.
The Muhurat Trading finds its relevance in history, where stock brokers and investors welcome the traditional New Year by buying stocks with a long-term holding period, with the intent of creating & preserving wealth for future generations. In recent times however, active investors look upon it as an opportunity to book profits on an intra-day basis.
Stock brokers and traders have upheld the notion that Muhurat trading will cause a rise in the stock market levels albeit tiny. Hence, such a favorable opening of the markets is expected to bring about wealth and prosperity for the new financial year.
It is evident that the idea of Muhurat Trading is deeply rooted in Behavioral factors such as traditional practices and emotional beliefs rather than any sound economic basis. This is further reflected in the fact that investors typically make small ‘Token’ investments, thus keeping the trade volumes thin.
If we analyze the historical data for Muhurat trading for last 20 years, BSE Sensex has reported an average return of meager 0.47% and has shown declines in only five out of twenty occasions. Furthermore, several studies indicate that the direction and movement of the markets on Muhurat trading day is not at all indicative of the trends in stock market post Diwali.
For all those new and existing investors who wish to cash in on the ‘auspicious’ sentiment of Muhurat trading, the crucial thing is to consider investment as a purely economic decision and not an emotional one. Any investment in stocks should be based on thorough research and sound advice keeping into consideration the portfolio objectives and given time horizon.
Also Read : SMART Tips for DIWALI Picks
The exhibit below is a true mirror of what is discussed above and it has never been significant in terms of profit booking. For investors, they should never treat it as a moment when FIIs would pump in funds but just a good luck gesture towards their own trading books.
If you have already missed out on the bull run in 2013-14, this can be treated as one such opportunity to make considerable investments and reap the rewards of holding for a span of 4-5 years. Economic Indicators and Growth Plans are very much in favor of an upward movement with occasional slides based on profit booking. However, the sentiments this year for Muhurat Trading would be overall positive, even after considering the fact that many of the companies would come out with their Q2 numbers in and around that time period.
However, the mantra for this year’s Muhurat Trading is – “Stay bullish… Stay invested!”
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