Are you planning to appease goddess Laxmi by buying stocks during muhurat trading this Diwali? To symbolize wealth and prosperity, which goddess Laxmi mythologically ushers in on Diwali, the tradition of muhurat trading continues in stock exchanges even though the momentum and excitement has declined over the years.
So should you be buying stocks just because the day symbolizes wealth? The answer is no. From the markets point of view, Diwali day is just another trading day. Says Motilal Oswal, chairman and managing director, Motilal Oswal Financial Services Ltd: “Investors should follow the asset allocation and investments should be process driven and not occasion driven.”
For example, the stock market hit a high of 21,000 points on the BSE Sensex on Diwali day in 2010, but two years later, it is still trading well over 2,000 points below that level.
What drives the market?
It’s not a particular event that drives the market, rather it is a combination of things, such as domestic and global factors, besides valuations and fundamentals of a company.
Says U.R. Bhat, managing director, Dalton Capital Advisors (India): “The importance of Diwali in stock markets has come down significantly. People should look at other factors before investing.”
Bhat further underlines that international factors have become extremely important in the market. For example, even as the uncertainty on the US presidential election is out of the way, markets all over the world are still nervous about the consequences of forced reduction of budget deficit on growth and employment.
If you already invest in the market and if you understand the company you plan to buy well, then it is business as usual. However, if you are a first-time investor, or rarely track markets, there is a fair chance that you will end up making a mistake.
Using the occasion to create long-term wealth
Interestingly, there is another line of thinking on investing on Diwali. Says Ajay Bodke, head (investment strategy and advisory), Prabhudas Lilladher Pvt. Ltd: “It (investing on Diwali) is about faith and belief and one should not always try to see this from the prism of logic and rationality.”
Taking the point forward, though Mint Money strongly believes in “logic and rationality”, one can build on this belief and make a sound financial plan for the future instead of just investing to mark the occasion.
You may choose to mark this Diwali to make a plan to create wealth in the long term. But in doing so don’t lose sight of your long-term financial goals and asset allocation.
Go for a financial plan: This year, instead of doing the “lucky” transactions on Diwali, build a sound financial plan.
To start with, take a break from mindless shopping and spending, and think about investing that money. Engage a professional, meet a financial planner or adviser and estimate your financial milestones over the next 20-30 Diwalis and not just this Samvat.
With the planner’s help, calculate how much you need to save and at what rate of interest so that you are able to achieve these future financial goals.
Estimate financial goals: Financial goals can be important events in the future where you may need to spend lump sums like children’s college education and marriage or planning for a comfortable retirement and keeping aside contingency money.
Says Nitin Vyakaranam, chief executive officer, Arthayantra Pvt. Ltd, an integrated personal financial services company, “It is also important to analyze where you stand today. Identify your good and bad financial holdings. Often there are financial leakages through a bad home loan or an insurance policy which is not needed and these can haunt you for a very long time.”
Go for asset allocation: Doing an asset allocation means you can build a portfolio of investments across equity, fixed income (both direct and through mutual funds) and other saving instruments such as provident fund. The aim is to generate returns through an appropriate mix of investments so that future financial needs can be fulfilled.
Planning future finances is not restricted to investing; you also have to review your liabilities or loans, expenses and insurance needs, among other things.
What should you do?
Diwali is a good time to start with your financial portfolio if you don’t have one already. Those who are already on that track can use the occasion to evaluate their portfolio performance and review financial goals. Says Vyakaranam, “Planning is done every year, but we do a quarterly review which not only looks at the client’s portfolio performance but also addresses matters related to execution.” An overall review once or twice a year is good to ensure that your asset allocation remains on track.
While tradition is important, evolving smartly with tradition will help you to be more prosperous.