Muhurat trading is a symbolic and culturally significant event in India’s stock markets, held annually during Diwali. This year, it will be observed on Friday, November 1, 2024, with a one-hour trading session expected from 6:00 PM to 7:00 PM on the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE). This special session is thought to bring wealth, success, and good fortune as it marks the beginning of the Hindu New Year, Samvat 2081.
WHAT IS MUHURAT TRADING?
Muhurat trading is a unique session conducted by Indian stock exchanges on Diwali, rooted in the belief that this “auspicious hour” is a time to attract prosperity. Many investors, traders, and stockbrokers believe that trades made during this time bring good fortune and mark the beginning of a new and successful financial year. The tradition goes beyond economic gains, as it symbolises the beginning of new ventures with a hopeful outlook.
“The practice of Muhurat trading dates back to when financial records were traditionally closed on Diwali to prepare for a fresh start in the New Year. For stock market participants, this hour is a time to make fresh investments with the hope that they will bring long-term benefits,” said Gaurav Garg, Lemonn Markets desk.
MUHURAT TRADING TIMINGS
The session this year will run from 6:00 PM to 7:00 PM on November 1, with pre-market trading starting at 5:45 PM. Although the stock markets will be closed for regular trading on Diwali, this special session will be open to investors for just one hour.
Muhurat trading follows the structure of a normal trading day but is condensed to one hour, allowing investors to place regular market orders, limit orders, and other standard trades. Settlement is also carried out as per usual exchange practices, typically T+1.
WHO PARTICIPATES IN MUHURAT TRADING?
“Muhurat trading is often more popular among retail investors, who may make small, symbolic investments in blue-chip or large-cap stocks as a way to build their portfolios. For many, the focus is not on immediate gains but on honouring a tradition that aligns with prosperity and growth. Institutional investors and high-frequency traders are usually less active, making the trading volume about 20-30% lower than a typical trading day,” said Garg.
Retail investors are more active during Muhurat trading, yet the total volume of shares traded remains low, as most investors make only small, symbolic purchases. In 2022, for example, both the BSE and NSE saw a dip in total trading volumes during the Muhurat session, although the number of trades by retail investors rose significantly, showing the cultural value of this tradition.
Investors often track returns from one Diwali Muhurat session to the next, referred to as “Muhurat-to-Muhurat” returns. Over the last decade, major indices like the Nifty 50 and Sensex have seen an average Muhurat-to-Muhurat return of 11-13%. Notably, Muhurat trading sessions tend to show modest gains, with average returns of 0.5% to 1% on Muhurat day itself.
PAST PERFORMANCE OF NIFTY 50 AND SENSEX ON MUHURAT TRADING DAYS (LAST 10 YEARS):
Muhurat trading session past performance (Credit: Lemon Markets)
From 2014 to 2023, eight out of ten Muhurat sessions saw positive returns, reflecting the optimistic sentiment typically surrounding this period. However, exceptions exist, such as in 2022 and 2015, when both Nifty 50 and Sensex showed negative returns from one Muhurat session to the next, despite the positive performance on Muhurat day itself.
“Certain sectors tend to perform well during Muhurat trading due to increased consumer spending in the festive season. Sectors like consumer goods, automobiles, and financial services often see gains. This trend aligns with the higher demand for consumer goods and vehicles, especially during Diwali,” mentioned Garg.
Mid and small-cap stocks generally show higher volatility during Muhurat-to-Muhurat returns. For example, in 2021, the Nifty Midcap 100 and Nifty Smallcap 100 saw high returns of 61.78% and 79.94%, respectively, driven by a strong post-pandemic recovery. In 2022, both indices also gained, with the Nifty Midcap 100 up by 25.15% and Nifty Smallcap 100 by 23.35%, despite some market volatility. On the other hand, years like 2018 and 2019 saw negative returns for these indices, underlining their volatility compared to larger indices like the Nifty 50 and Sensex.
(Disclaimer: The views, opinions, recommendations, and suggestions expressed by experts/brokerages in this article are their own and do not reflect the views of the India Today Group. It is advisable to consult a qualified broker or financial advisor before making any actual investment or trading choices.)
Published On:
Oct 28, 2024
