On Sunday, India’s stock markets celebrated Diwali muhurat trading from 6pm to 7.15pm, marking the beginning of the Hindu financial year Vikram Samvat 2080. For more than five decades, muhurat trading has been a ritual that symbolizes prosperity and luck for traders, many of whom seek to make long-term investments every Diwali. So how have investors benefited from muhurat trades over the years?
On Sunday, India’s stock markets celebrated Diwali muhurat trading from 6pm to 7.15pm, marking the beginning of the Hindu financial year Vikram Samvat 2080. For more than five decades, muhurat trading has been a ritual that symbolizes prosperity and luck for traders, many of whom seek to make long-term investments every Diwali. So how have investors benefited from muhurat trades over the years?
An analysis of sensex data over the past 11 years shows that the return highest observed at a muhurat trading day was in 2022 – an impressive 0.88%, while the lowest returns of -0.6% were recorded in 2017.
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An analysis of sensex data over the past 11 years shows that the return highest observed at a muhurat trading day was in 2022 – an impressive 0.88%, while the lowest returns of -0.6% were recorded in 2017.
Other interesting trends emerge from a comparison of muhurat the trading day returns to the average daily return of the Sensex. In 2013, 2014, 2016 and 2019, returns on muhurat outperformed the respective average daily returns of the Sensex. Conversely, in 2015, 2017 and 2018 muhurat return was lower than the average daily return.
Notably, the probability of the Sensex ending in the green on a Diwali, based on the last 23 years of data, is 87%. This suggests a strong trend towards positive market performance on these promising trading days.
Diwali chooses
Every year, brokers and sell-side research firms start publishing and marketing their Diwali stock recommendations 10-15 days before the festival of lights. Recommendations come from both fundamental and technical research teams and have varying holding periods and target prices.
However, brokerage houses have been selective in comparing their previous year’s performance, and this is based on the composition of stocks in their portfolios. Recommendations that primarily include mid- and small-caps are often benchmarked against the Nifty 50 or Sensex to show better performance.
Ahead of Diwali this year, top brokerage firms in India shared their top picks of stocks expected to thrive in the new year of Samvat, the Hindu financial year. These choices are based on various parameters. The returns of these stocks, based on a balanced basket recommended by brokers, depicted a diverse landscape of successes and setbacks in the stock market in line with Diwali’s predictions.
For example, brokerage HDFC Securities emerged as a standout performer, posting an impressive total return of 41.6% for its 2022 Diwali portfolio, significantly outperforming the Nifty Midcap 100 benchmark of 31.20%. Their top pick that year, RVNL, was up an incredible 324%, while their worst pick, Deepak Fertilizers, saw a -41% decline. Kotak Securities followed suit with a return of 11.9%, slightly outperforming the Nifty 50 TRI benchmark of 10.9%, led by successful picks like DLF, which rose 63%. On the contrary, ICICI Direct fell short, securing a return of just 10% against the Nifty Midcap 100 benchmark of 31.20%, and faced setbacks, notably with City Union Bank falling -25%. Brokerages Sharekhan and Nirmal Bang posted mixed performances, with Sharekhan almost in line with the Nifty Midcap 100 benchmark, while Nirmal Bang outperformed the Nifty 50 TRI benchmark.
Angel One, despite a total return of 23.0%, underperformed the Nifty Midcap 100 benchmark due to issues with picks like Stove Kraft, which fell -22%.
When asked about the relevance of these stock picks to a retail investor, Ravi Saraogi, founder of Samasthiti Advisors, said, “Diwali picks offered by brokers have only one objective – to get you to trade so they can earn more brokerage income. For such picks to have any sanctity, the brokerage firms should come up with a list of all past Diwali picks and their current price performance. Not a single brokerage does this, so you should completely ignore such picks.”
However, Nirav Karkera, Head of Research at Fisdom, shared conflicting views and endorsed these recommendations as deeply researched and of value to the retail investor. He said: “Many stockbrokers run robust research practices, either in-house in isolation or in collaboration with research firms. Diwali picks should ideally be interpreted as a set of scripts where the analysts have a high degree of conviction in expecting strong performance on cards to medium term. While this is often similar to the research calls given throughout the year, the Diwali backdrop adds a festive touch to the whole affair. Therefore, the quality and value addition of such picks really depends on the analytical rigor and ability to perceive potential growth . This is as relevant to Diwali elections as it would be to any other analytical call.”
Muhurat returns
A comparison between investment ₹1 lakh annually on Diwali gold muhurat trading day versus investing on random days across the year from 2013 to 2022 provides interesting insights.
In scenario 1, where ₹1 lakh was invested every year on Diwali during the last decade, the cumulative investment of ₹10 lakh resulted in a portfolio value of ₹19,44,471 by November 13. Despite an absolute return of 94%, the portfolio’s XIRR (extended internal rate of return) was set at 11.7%.
Conversely, in Scenario 2, involves a corresponding annual investment of ₹1 lakh but on random days during the year the cumulative portfolio value per November 13 on ₹20,85,126. This approach produced an absolute return of 109% with a higher portfolio XIRR of 12.9%.
This comparison highlights a consistent trend: to invest an annual sum of ₹1 lakh on muhurat trading day shows a lower long-term portfolio XIRR when juxtaposed with the strategy of investing the same amount randomly throughout the year. Available data (see graphic) details the units purchased and cash flows for each strategy and paints a comprehensive picture of their respective results.
Despite the tradition and attraction from muhurat invests during Diwali, data suggests that returns from such investments on that day may not consistently exceed the average market performance. The Diwali stock picks put forward by brokerages are showing varied success and hence investors need to be cautious while interpreting their true value.