In times where the world is fighting a battle against the coronavirus pandemic, stock markets across the world are showing signs of volatility, and Indian markets aren’t an exception.
Authored by Prabhakar Tiwari
The most awaited festival- Diwali is around the corner. The festival of light is believed to bring joy and prosperity when it knocks on our doors. The auspicious occasion of Diwali is used to make investments with the mindset that they will multiply in value, in due course of time. One such auspicious occasion is referred to as Muhurat Trading, and it is held usually during evening hours on the festival day.
In times where the world is fighting a battle against the coronavirus pandemic, stock markets across the world are showing signs of volatility, and Indian markets aren’t an exception. In such a scenario, age-old traditions like the ‘Muhurat Trading’ hour during Diwali is all about keeping the negativities at bay, and encouraging investors to begin the new financial cycle with positivity.
What Is Muhurat Trading?
Though many details have already been mentioned about the definition of Muhurat Trading and what it entails, here is a quick guide to appreciate its significance. Muhurat is an auspicious time according to the Hindu calendar, wherein, the planets positively align themselves. Millions of Indians believe that it indicates the perfect duration when any activity can be performed. The belief is that an auspicious time such as this can bring rewards, make businesses fruitful, and make good omens free everyone from evil forces.
Muhurat Trading is a symbolic trading session held at the Indian stock exchanges like NSE and BSE on Diwali day. It is an hour-long session, and it is considered essential to mark the beginning of the traditional Hindu accounting year.
Alongside stock exchanges, Muhurat Trading sessions are held also at commodity exchanges for the investors. However, investors must remain calm while investing, and they must do so without relying on emotional instincts or a hurried approach. They must approach it cautiously, to avoid making wrong investment decisions.
How can investors make the most of it?
Muhurat Trading is extremely popular among Indians during the festival, and ace investors as well as beginners can take these precautions while making the most of Muhurat Trading.
Do not expect handsome returns
Though Muhurat Trading is considered auspicious for buying stocks, investors should always remember that there is no guarantee that they will receive good returns for the rest of the year. To avoid losses, the investors must conduct in-depth research and seek the assistance of financial advisors to choose the right options. It is always advisable for investors to put their money in the stocks that help them achieve their financial goals after proper research.
Don’t misjudge the settlement period
The settlement of the trade that is done during muhurat trading happens as per normal stock exchange rules, which is T+2 days. Traders should not misjudge the settlement period during muhurat trading, as it is the same as the normal trading sessions. The markets, however, are less volatile on muhurat trading day, as investors are willing to buy stocks rather than selling the stocks already held by them.
Refrain from high exposure in some stocks
There are liquidity constraints during muhurat trading, owing to which, the investors should avoid taking heavy exposure in specific stocks. The market is open on the day of the holiday only for an hour which results in less participation from the investors. This can, in turn, affect the liquidity conditions of the market.
Avoid being driven by emotions
Muhurat Trading is an auspicious occasion for the investors, however, they need to be cautious while making investment decisions. In-depth research and expert financial advice should be sought to maximize returns on investments.
Where can investors invest during Diwali?
Various financial instruments are available for investments, but the best investment options during the festival of Diwali are as follows:
Gold and Silver
Gold and silver have been a popular investment option among Indian investors since early days, as there were not many investment avenues available. It was also believed that the prices of these metals usually rise consistently. However, the reality today is different as there are a lot more options available. An investor should not invest more than 5 percent to 8 percent of his/her complete portfolio in these precious metals.
Mutual funds are suitable investment options for investors looking for liquidity and professional management. They offer better returns, diversification of the portfolio, and flexibility in investments. Investors can choose to put their money in debt funds, equity, or hybrid mutual funds, based on their investment objectives. Since mutual funds require an appetite for taking risks, the best way forward is to seek the assistance of financial advisors.
Equity investments can generate multi-fold returns in the long-term, but also possess a high-risk profile in parallel. Therefore, investments in equities should be made only after seeking expert advice. An investor should not allocate more than 15 to 20 percent of his portfolio towards equities. Equities are as liquid as mutual funds, and hence they are a popular choice.
Prabhakar Tiwari is CMO, Angel Broking Ltd
First Published: IST