Portfolio

Shubh Labh

Lokeshwarri S K | Updated on January 16, 2018

big story1

Stock markets continue the age-old tradition of Muhurat trading. How significant is it?

Three decades ago, when foreign investors had not hit Indian shores and the Gujarati and Marwari brokers dominated Indian stock markets, brokers’ offices were lit up and Dalal Street wore a festive air during Diwali. While the celebrations are a little muted now, the ritual of Muhurat trading continues and many Indians look to buy gold on the Dhanteras day.

Muhurat day trends

But if you love excitement, the Muhurat session is not for you, for the indices and the stocks mostly move in a placid fashion in this session. Those who are ritualistic key in some token trades and the Sensex typically closes the session with gains.

In the 15 years since 2001, the Sensex has closed with gains in 13 years. The gains have ranged from 0.2 to 1.3 per cent, with the exception of 2008. Since 2010, the range has narrowed further, with the Sensex change ranging between -0.3 and 0.5 per cent. Volumes are quite low in these sessions. Cash volumes of NSE in the Muhurat trading session have been ₹2,000-3,000 crore while derivative volumes have ranged between ₹20,000 crore and ₹30,000 crore. This is around 10 per cent of the daily trading volume on the exchanges.

The category-wise trading data put out by the BSE indicates that retail investors are the most active in these sessions.

Institutional investors, including foreign investors, do not participate much. One interesting trend noted over the last four years is that brokers have been net sellers in the Muhurat session on the BSE. Proprietary traders have sold more than they have bought over the last four years. Perhaps brokers like to start the New Year with a bit of cleaning up of their books.

There is no discernible trend in stocks bought and sold on Diwali day. For instance, in 2015, Axis Bank, YES Bank and BPCL moved up sharply while in mid and small-cap categories, stocks such as Den Networks, Hathway Cable, Interglobe Aviation and Hindustan Construction were top gainers. In 2014, the stocks in sectors such as oil and gas, consumer durables and capital goods made smart gains.

Some memorable sessions

Among recent Muhurat sessions, the one in 2011 will stay in memory due to the flash crash that occurred on the BSE that day. An algorithm that went into a loop kept entering repeat trades in the Sensex futures contract, resulting in trades worth ₹25,000 crore from one member in that session. All the trades in Sensex futures of that session had to be annulled.

But investors will have fond memories of the 2008 Muhurat session. In that year, the market had crashed in the previous sessions, following the Lehman debacle. But the bulls returned on Diwali day, taking the Sensex 5.86 per cent higher in the Muhurat trading session. That also marked the lowest point of the 2008-bear market. The Sensex is up more than three-fold since the low of 7,697 hit in that week. Another memorable Diwali session of recent times is the 2007 session. The Sensex scaled 20,000 in the early part of the Diwali week in 2007. Investors turned nervous at this milestone and the index lost 0.8 per cent in the Muhurat session that year. We all know what followed in 2008.

What should you do this Diwali?

It is best not to look for cues from the Diwali session. The stock market typically resumes the structural trend once Diwali is done with. For instance, in the Muhurat session of 2010, the Sensex gained 0.5 per cent but the index was down 19 per cent a year later. The structural uptrend in the market since 2012 has resulted in the Sensex showing gains a year after the Muhurat session consistently over the last four years.

It would therefore be best not to get too carried away this Muhurat session. Key in some token trades, if you believe in rituals. Else, just chill, and enjoy Diwali with family and friends.

Published on October 23, 2016

Follow us on Telegram, Facebook, Twitter, Instagram, YouTube and Linkedin. You can also download our Android App or IOS App.

null
This article is closed for comments.
Please Email the Editor