Do’s and Don’ts for Muhurat Trading

| Published on 6th November 2020 | 759

Do's and Don'ts for Muhurat Trading

Diwali, the festival of lights, is amongst India’s most auspicious events. It holds a special place for everyone including the business and marketing communities. This implication means Diwali is generally a trading holiday. However, both the NSE and BSE make special allowances for a trading session in the evening. This trading session is known as ‘Muharat Trading’ as a tribute to Goddess Lakshmi, who is the goddess of wealth and prosperity.   

Trading in the stock market during this auspicious time is believed to result in prosperity and wealth thereafter. Hence, let’s take a moment and look at some Dos and Don’ts during the Muharat Trading.

Dos

1. Entering the equity market during Muharat Trading

Now and then, investors are faced with the question of when to enter the equity market. Entering the equities is a very commendable move, even if you are a new investor. The market is abuzz with investors making token orders and buying stocks that have high-potential ROI. This means that the market is less volatile on this auspicious day due to the trend of traders preferring to buy stocks rather than selling them off. 

You can make your entry by making a token purchase. In the meantime, it will go a long way if you set a financial discipline also as Diwali is essentially about new beginnings. You need to ensure that you track your investments every quarter, if not on a monthly or daily basis. A portfolio of equities, debt, gold, or real estate requires regular reviewing.

2. Buying rural-consumption-centric stocks 

Interestingly, growth dynamics go strong with consumption-based companies, especially those engaging in the FMCG and the two-wheeler segment. Price wars draw to a close, and top-line growth receives a boost and achieves double-digit growth rates. GST implementation has resulted in the addition of an extra alpha layer to these stocks, meaning that their allocation efficiency in the coming years will witness a substantial improvement. That said, GST has long been favoring food companies, despite their relatively rich valuations, and they are more likely to thrive. 

In the meantime, within the consumption-focused segment, you should be on the lookout for sub-sectors such as rural consumption. Since MSP is fixed at an assured 150% of the cost of production and MSP benefits cover Rabi crops as well, there is an increase in rural purchasing power. To that end, you must zoom in on companies that deal on the input-end, such as hybrid seeds, drip irrigation, fertilizers, and agrochemicals amongst others.  

Don’ts

1. Getting carried away by the promise of good fortune

In the investment world, you need to keep your wits about you. Maintaining a realistic frame of mind is one way to get going. It would be best if you do not get carried away by the adrenaline rush of a promised future prosperity. Muharat Trading is indeed a promising chapter in an investment career. But, you must know that “auspicious” does not denote a certain future success, and the positivity of this day does not guarantee a handsome ROI for the rest of the year if you do not make the right calculations. 

As such, despite the vibrant dynamics of the day, you should still leverage intensive research and enlist the guidance of financial experts/managers to shuffle your portfolio for a lasting wealth generation model.

2. Taking heavy exposure

There is this issue of liquidity constraints during Muharat Trading. It is a clue that you should not take heavy exposure to any specific stocks. During this session, the domestic market will be open to trade for just one hour. This means participation will be very thin, thereby resulting in the volatility of liquidity conditions. As an investor, you need to make sure to take stock of the market and take steps cautiously.

To that end, you should think twice about taking heavy exposure in any specific stocks on this Muharat trading day. In fact, there will be no restriction on you from the exchange in terms of exposure, but this does not imply that you should go the whole hog and take heavy exposure. Therefore, the key to the desired moderation lies in making a prudent, calculated move.

Muharat Trading is the perfect time for new players to enter the market. As things stand, if you are a beginner, a token purchase is the right strategy to go about it. This time of the year is an ideal entry point for those contemplating a career in trading/investment. Muharat Trading is even more ideal for players considering a long-term investment. The long-term goal is all the more relevant if you consider that cyclical is one important aspect and less liquidity. After all, it is an auspicious occasion and a perfect time to kick-start a new journey.