News Analysis

Muhurat day picks don’t always make for good long-term bets

Keerthi Sanagasetti BL Research Bureau | Updated on November 16, 2020 Published on November 16, 2020

BSE building during the Diwali 'muhurat' trading session in Mumbai   -  PTI

In only two of out the last five years, have at least 5 out of the top 10 Muhurat picks of investors given positive returns till date.

While the Sensex touched its lifetime high of 43,830.93 in Samvat 2077’s Muhurat session and closed at 43,637.98 (0.45 per cent over Friday’s close), the broader BSE 500 index gained 84.76 points or 0.51 per cent.

To usher in the new year this time, investors seem to have followed the cues from quarterly results and the Finance Minister’s recent announcements around boosting real estate demand, to pick their stocks. Thus, stocks such as MAS Financial Services which reported its September quarter results on Saturday, Repco Home Finance and Indiabulls Real Estate were among the top gainers within the broader BSE 500 index on Muhurat day. Kalpataru Power Transmission, Aditya Birla Capital and Century Plyboard were among the other top favourites of investors this Muhurat session.

But most Diwali picks seem to work well only in the short-term, as investors seem to go with the flavour of the season each year, rather than picking stocks from a long-term perspective.

We analysed the performance of top 10 stocks picked by investors (in terms of price rally on Muhurat day) in each of the last 5 Muhurat sessions (2015 to 2019). Over the years, in only two years - 2015 and 2018 - have at least 5 out of the top 10 picks of investors given positive returns till date. Among the top pick of each year since 2015, three stocks sport negative returns till date (see table).


 

Fundamentals play out

While short term factors help sustain the near term momentum for the stock, business cycles and other fundamentals play out over the long run.

Take, for instance, RBL Bank, which was on the radar of investors in 2016 thanks to its listing that year. In the Muhurat session of 2016 (Samvat 2073), the stock inched up 4 per cent. While the stock rallied over 40 per cent in the following six months, the exuberance soon fizzled out. In July 2019, when the bank’s management hinted at a likely dent in its asset quality (particularly in a corporate book), the stock slumped by over 30 per cent, in just one month.

For investors holding the stock to date, a capital erosion of over 45 per cent (since Samvat 2073) has occurred.

In 2017, when stocks in the mining and metals industry were witnessing the peak of their up-cycle, investors chose MOIL as their best bet on the Muhurat day. However, with the US-China trade tensions exerting pressure on metal stocks; thereafter, the stock witnessed a capital erosion of about 50 per cent for investors who held it to date.

Similarly, stocks such as Hathway Cable & Datacom and Garden Reach Shipbuilders that rallied by 11 per cent and 14 per cent on Muhurat day in 2015 and 2019 respectively, have also slipped. The stocks have dented investor wealth by 38 per cent and 7 per cent, respectively, to date.

Some multi-baggers

There are some exceptions, though.

In 2016, three out of the top 10 investor picks on Muhurat day, more than doubled till date—the stocks of V- Mart Retail, KEI industries and Minda Industries. V-Mart Retail, a top Muhurat pick in both 2015 and 2016, turned out to be a money multiplier stock for investors—the stock quadrupled to ₹2,010 from Rs 466 in November 2015.

Investors also picked stocks such as Alkyl Amines Chemicals and Himadri Specialty Chemicals in the Muhurat session of 2015. Following the recent buoyancy in the specialty chemicals space (with the industry witnessing strong tailwinds from the anti-China sentiments world over) the stocks more than doubled till date.

Manappuram Finance—among the top picks of Muhurat traders in 2018--rallied over 90 per cent till date, on the back of gold price rise and surge in gold loan demand.

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Published on November 16, 2020
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