Why muhurat trading doesn't get you a Diwali bonus always

On Sunday, India’s stock markets held the Diwali muhurat trading from 6pm to 7.15pm, marking the commencement of the Hindu accounting year Vikram Samvat 2080. For over five decades, muhurat trading has been a ritual, symbolizing prosperity and good fortune for traders, many of whom seek to make long-term investments every Diwali. So, how have investors benefited from muhurat trades over the years?

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An analysis of sensex data over the past 11 years shows that the highest return observed on 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 the muhurat trading day returns to the average daily returns of the Sensex. In 2013, 2014, 2016, and 2019, returns on muhurat surpassed the respective average daily returns of the Sensex. Conversely, in 2015, 2017, and 2018, the muhurat returns fell short of the average daily returns.

Notably, the probability of the Sensex ending in the green on a Diwali, based on the last 23 years of data, stands at 87%. This suggests a strong tendency for positive market performance on these auspicious trading days.

Diwali picks

Every year, brokers and sell side research firms start publishing and marketing their Diwali stock recommendations 10-15 days prior to the festival of lights. Recommendations come from both fundamental and technical research teams and have varying holding periods and target prices.

However, brokerages have been selective in comparing their previous year’s performance and that is based on the composition of stocks in their portfolios. Recommendations containing primarily mid- and small-caps are often compared to the Nifty 50 or Sensex to show outperformance.