The Diwali Effect: Historical Trends in Stock Markets

Indian stock markets are set to initiate a special Diwali Muhurat Trading session on Sunday, November 12, 2023, from 6 PM to 7.15 PM. This unique trading tradition aligns with the commencement of the Hindi accounting year, Vikram Samvat 2080. The Muhurat Trading holds significant cultural importance, as it is considered an auspicious time for commencing new ventures or making favourable investments.

Rooted in Hindu mythology, the Muhurat Trading marks the initiation of a new Vikram Samvat, a practice particularly observed by business communities like the Marwari and Gujarati. This ritual involves the opening of account books, a symbolic act reflecting the start of a new business cycle. Many Hindu investors seek the blessings of Goddess Laxmi, engage in worship ceremonies for their account books on the eve of Diwali and subsequently inaugurate fresh account books for the forthcoming business cycle.

Historical Market Trend of Muhurat Trading

Over the years, Diwali Muhurat Trading has consistently encouraged traders and investors, showcasing the dynamic nature of India’s benchmark stock market index, the Sensex, from 2012 to 2022.

In 2012, the Diwali Muhurat trading day saw a slight dip in the Sensex, a modest decline of 0.3%. This marked the beginning of a decade characterised by mixed fortunes for the index. In the subsequent years, 2013 and 2014 witnessed subtle increases of 0.2%, laying the foundation for more significant movements in the following years.

The year 2015 brought heightened enthusiasm to the market, witnessing a substantial gain of 0.5% in the Sensex. It was a year filled with promise, indicating the index’s potential for growth. However, this optimism was short-lived, as 2016 and 2017 saw declines of 0.4% and 0.6%, serving as a reminder of the inherent volatility in the stock market.

A positive shift occurred in 2018 when the Sensex surged by 0.7%, marking a significant change in market sentiment, with investors regaining confidence in Indian equities. This positive momentum persisted in 2019 and 2020, with increases of 0.49% and 0.45%, respectively.

In the more recent years, 2021 and 2022, the Sensex continued its positive momentum, recording gains of 0.49% and 0.88%, respectively. These years stand as a testament to the resilience and strength of the Indian stock market, demonstrating its ability to weather global uncertainties.

A Quick Recap of Samvat 2079

The most recent Muhurat session, 2022, proved highly lucrative for traders as the Sensex witnessed a noteworthy gain of 0.88% on that particular day.

Examining the performance over the past year until November 8, the BSE Sensex and the broader NSE Nifty displayed resilience by rallying 6.5% and 7.1%, respectively. Notably, Small and Midcap indices outshone the benchmark indices, boasting impressive growth rates of 31% and 26%, respectively.

The initial half of Samvat 2079 experienced a subdued phase in the Indian stock market, primarily due to a confluence of factors such as escalating interest rates, bond yields, the resurgence of Covid-19 cases in China towards the end of 2022, Union Budget concerns, and various macroeconomic challenges.

However, a remarkable recovery unfolded in the latter half of Samvat 2079, rebounding from the market’s low point in March 2023. Several factors contributed to this resurgence, including positive sentiment generated during the G-20 event, sustained fund inflows from foreign institutional investors (FIIs), enhanced corporate earnings, robust macro indicators, and optimistic expectations regarding the private investment cycle.

During this period, BSE-listed firms’ market capitalisation (m-cap) skyrocketed to a record high of ₹320 crore in the first week of June. This surge catapulted India to the fifth-largest market globally, trailing only behind the U.S., China, Japan, and Hong Kong. This achievement underscored the robustness and attractiveness of the Indian market on the global stage.

During the Samvat 2079, the NSE Nifty 50 exhibited a robust surge of 9.5%. Notably, broader indices outperformed, with the Nifty Smallcap 100 and Nifty Midcap 100 experiencing impressive climbs of 35% and 29.5%, respectively. Among the sectors, the PSU Bank index witnessed a remarkable surge of 51%, while Realty showed significant strength with a surge of 52.22%. The only exception was the Oil and gas index, which concluded with a marginal decline of 0.2%.

Outlook for Samvat 2080

In Samvat 2080, amidst numerous global challenges and the looming General Lok Sabha election, analysts foresee sustained volatility. Nevertheless, there is a prevailing belief in a positive overall market trend. The Nifty, currently trading at a 12-month forward P/E of 17.6x, offers a 13% discount compared to its 10-year average, providing a sense of reassurance.

Much like the planning and execution that goes into a perfect Diwali celebration, approaching investments requires dedication and foresight. Initiating investments early, establishing clear financial goals, diversifying your portfolio, and exploring alternative investment opportunities are essential to ensure a prosperous and secure financial future. 

Let Diwali be more than just a festival of lights; let it also mark a festival of financial enlightenment. Happy Diwali!

Disclaimer: This article is intended for educational purposes only. The securities mentioned are solely examples and not recommendations.