How investors can make the most of Muhurat trading

Almost every Indian understands the cultural and religious significance of Dhanteras. It is hard to miss the fact that this day is considered auspicious for buying precious metals (which today also includes cars – fair enough, an automobile is crafted mostly from metal and is typically expensive). It’s difficult to avoid this fact because shops that sell gold are usually very crowded on this day. Even people who do not have sufficient capital to invest in gold and silver will usually purchase at least metal utensils so as to partake in the auspiciousness of the day and bring home blessings along with their shopping haul.

Very similar to this concept Muhurat trading refers to trading during an auspicious hour on the eve of Diwali.

What is Muhurat trading?

Muhurat Trading refers to the one hour of trading held on the eve of Diwali to allow traders and investors to make the most of this auspicious time. People who have faith that their investments made during this time will be blessed will typically place trades at this time. Countless stock market investors from all over India buy stocks or invest in commodities (especially gold and silver) during this auspicious hour.

The shares bought and sold during this hour are referred to as Shagun Ke Shares.

The timing when Muhurat trading is held – during the evening – does not typically comprise trading hours on any other day because the trading day concludes at 3.30 pm. However, this session keeps both stock exchanges – BSE and NSE – open for an hour, along with commodities exchanges, to allow traders to make “blessed” trades.

Ways to practice a balance of excitement and caution during the Muhurat trading session:  

Research your investments: If you are a beginner investor, you will be trading alongside not just beginners like yourself but also much more experienced traders. As a result, traders must do sufficient research (prior to the session) about stocks that they intend to invest in. They should avoid trading blindly or emotionally and should use the intelligence they are blessed with to conduct thorough research into company financials before investing. Seek out advice only from a certified financial expert if you need help making the right selection.

Consider liquidity: As you can imagine, although many investors partake in Muhurat trading, the trader volume during this hour does not equal other days. As such there are fewer buyers for stocks and you may not be able to find a buyer at your target price on this very day. Keep this in mind while formulating a sensible, earnings-oriented strategy.

Understand the fundamentals: Trading works as it usually does during the Muhurat Trading session too. This means that you get delivery of your shares two days after the trade is placed. Most people intend to buy on the Muhurat trading day. Consider this too while formulating your strategy.

Be realistic: While your trades are considered to be auspicious and blessed on this day, do not be negligent of risk, risk appetite and the fact that there are no guarantees on the stock market. Invest with capital that is over and above what you need for your daily lifestyle, choose investments that match your risk appetite and – we cannot underscore this enough – invest based not on your “gut feeling” but on research findings of the company’s financial health. Always set a stop loss when buying shares.

Muhurat trading investment options to consider

Silver and gold among commodities: First things first. Precious metals should not comprise more than 10% of your total investment portfolio. If you have Rs 60,000 to invest this year, your investment in precious metals should not cross Rs 6,000. There was a time when people could rely on the steady and gradual growth of precious metals over time but today this growth is neither guaranteed nor linear. It’s not steady either. Invest, if you feel it is right, but do so with caution.

Mutual funds for indirect stock market exposure: A relatively safe investment option during Muhurat trading in mutual funds. Thanks to the typically professional education, background and experience of fund managers who choose what to do with pooled investor capital, there is usually lower risk in these investments. You do not choose the stocks and bonds for investment with your limited awareness; the fund manager does. Although they are less risky than directly investing in stocks, mutual funds too, come with some stock market risks. Debt funds are lower on the risk scale, while equity funds are higher on the risk scale. Choose according to your risk appetite.

Stocks/ equity for direct market exposure: You can invest up to 20% of your investment portfolio in stocks but be careful to diversify your investment across different sectors and companies to protect yourself from stock market risk and any fall in stock prices. Your investment has the potential to really multiply on the stock market if you choose correctly and time your entry and exit optimally.

Begin investing this Diwali!

Disclaimer: The article is for educational purposes only. Investment in securities is subject to market risk. Read all related documents carefully before investing.