Indian stock brokers, intermediaries and investors celebrate Diwali in a special way — through the Muhurat trading session. This special trading is held for an hour or so on Diwali night so that investors can do ritualistic trading in the stock market. Even as Indian markets have moved away from the trading ring and investors are no longer predominantly Indian, this tradition continues. This year stock exchanges will host ‘Muhurat Trading’ on 19 October.
What is it?
Muhurat, according to the Hindu lexicon, means ‘an auspicious time’ decided by planetary movements. So what better way to ward off those evil losses in the stock market? Trading in the stock market on Diwali day at a specific Muhurat time is hence believed to bring prosperity and wealth for the year ahead.
For Gujaratis and Marwaris, the new financial year begins on Diwali. Old account books are closed and new ones are opened as the new ‘Samvat’ begins. Since in India, stock markets are dominated by these two communities, Diwali has a special place in the markets. It is a festive occasion when the family members of stock brokers join the prayers held in the broker’s office. The first token order, that is usually a ‘buy’, is then punched in. As Diwali is also the time when the goddess of wealth is worshipped, what better place to offer your prayers to the goddess than the terminal?
Why is it important?
The Muhurat session is important only if you are religious and superstitious. Else, you can switch your trading terminals off and burst crackers instead. That might be more fun.
For, Muhurat trading sessions are generally quite insipid. If you are a newbie eager to make a beginning, you could do so on this day. Prices tend to be less volatile. But if you are a seasoned trader hoping to make a killing, volumes tend to be thin on this day, and it is quite likely that your trade might not go through in some stocks. Because of the bias towards buy orders rather than sell orders, markets have generally ended on a positive note on this day, though by a small margin. According to some reports, the Sensex has gained 71 per cent of the time since 1992, with a marginal gain of about one per cent.
Why should I care?
You cannot afford to ignore the Muhurat session if you hold stocks in your portfolio. Since the stock market is closed on Diwali day, stock prices tend to move in the Muhurat session to reflect the global and domestic news-flow. In recent years foreign investors too have been active in these sessions.
But do not be misled by promises of bountiful profits on investments made in this session. When picking a stock, make sure it is based on sound analysis and not driven by superstitious sentiment alone.
And don’t get carried away by the predictions that a good Muhurat session augurs well for the whole year. Historical data suggests that there is no definite correlation between returns on the day of Muhurat trading and subsequent movements in the market.
While it is great way to begin the new year with a cracker of a start, don’t get carried away by the fervour of the day. Make sure you invest smart, keeping in mind the longer term prospects of the stock.