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

Investors need to be cautious  while interpreting the true value  of the stock picks put forth by brokerages. (AP Photo)
Investors need to be cautious while interpreting the true value of the stock picks put forth by brokerages. (AP Photo)


  • Returns from muhurat trades may not consistently outshine average market performance.

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?

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.

Ahead of Diwali this year, top brokerage firms in India shared their top picks of stocks expected to thrive in the new Samvat year, the Hindu accounting year. These picks are based on various parameters. The returns from these stocks, based on an equi-weighted basket recommended by brokers, portrayed a diverse landscape of successes and setbacks in the stock market aligned with Diwali predictions.

For instance, brokerage HDFC Securities emerged as a standout performer, showcasing an impressive 41.6% overall return for their 2022 Diwali portfolio, significantly surpassing the Nifty Midcap 100 benchmark of 31.20%. Their best pick that year, RVNL, soared by an incredible 324%, while their worst pick, Deepak Fertilizers, experienced a downturn of -41%. Kotak Securities followed suit with an 11.9% return, slightly outperforming the Nifty 50 TRI benchmark of 10.9%, led by successful picks like DLF, which surged by 63%. On the contrary, ICICI Direct fell short, securing just a 10% return against the Nifty Midcap 100 benchmark of 31.20%, facing setbacks particularly with City Union Bank declining by -25%. Brokerages Sharekhan and Nirmal Bang showcased varied performances, with Sharekhan nearly aligning with the Nifty Midcap 100 benchmark, while Nirmal Bang outperformed the Nifty 50 TRI benchmark.

Angel One, despite an overall 23.0% return, underperformed against the Nifty Midcap 100 benchmark due to struggles with picks like Stove Kraft declining by -22%.

When asked about the relevance of these stock picks for a retail investor, Ravi Saraogi, founder of Samasthiti Advisors, said, “Diwali picks offered by brokers has only one goal—to get you to trade so that they can make more brokerage revenue. For such picks to have any sanctity, the brokerage firms should come up with a list of all previous Diwali picks and their current price performance. Not a single brokerage firm does this, which is why you should completely ignore such picks."

However, Nirav Karkera, head of Research at Fisdom, shared conflicting views and supported these recommendations as deeply researched and of value to the retail investor. He said, “Many stockbrokers run robust research practices, either in-house in isolation or in collaboration with research firms. Diwali picks must ideally be interpreted as a set of scrips where the analysts have a high degree of conviction in terms of expectation of strong performance in the near- to medium-term. While this is often similar to the research calls given through the year, the Diwali backdrop adds a festive touch to entire affair. Hence, the quality and value add of such picks really depends on the analytical rigour and ability to perceive potential growth. This is as applicable to Diwali picks as it would be to any other analytical call."


(Graphic: Mint)
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(Graphic: Mint)

Muhurat returns

A comparison between investing 1 lakh annually on Diwali or muhurat trading day versus investing on random days across the year from 2013 to 2022 yields interesting insights.

In Scenario 1, where 1 lakh was invested each year on Diwali over the past decade, the cumulative investment of 10 lakh resulted in a portfolio value of 19,44,471 by 13 November. Despite showcasing an absolute return of 94%, the portfolio XIRR (extended internal rate of return) settled at 11.7%.

Contrastingly, in Scenario 2, involving a similar annual investment of 1 lakh but on random days throughout the year, the cumulative portfolio value by 13 November stood at 20,85,126. This approach yielded an absolute return of 109% with a higher portfolio XIRR of 12.9%.

This comparison illuminates a consistent trend: investing an annual sum of 1 lakh on muhurat trading day demonstrates a lower portfolio XIRR over the long term when juxtaposed with the strategy of investing the same amount randomly throughout the year. Available data (see graphic) elaborates on the units purchased and cash flows for each strategy, painting a comprehensive picture of their respective outcomes.

Despite the tradition and allure of muhurat investing during Diwali, data suggests the returns from such investments on that day may not consistently outshine average market performance. The Diwali stock picks put forth by brokerages show varied success, and so investors need to be cautious while interpreting their true value.

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