What is Muhurat Trading and Why it's Significant for Indian Traders?

13 Nov, 2020

8 min read

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What is Muhurat Trading? - Smart Money
The muhurat trading is a special one-hour trading session allowed by the stock exchanges on the day of Diwali. Buying and selling shares during the muhurat trading is considered to be auspicious by a large number of traders and stockbrokers.

Muhurat trading

The world has undergone rapid change in the last few decades and India is not an outlier. Booming cities, shining skyscrapers and world-class expressways have become common in the country. There are signs of development and prosperity all around India. However, India is a unique country. Indians have been largely successful in preserving the old along with the new. The practices in the country are an eclectic mix of modernity and centuries-old traditions. No major economic sector has remained untouched from the peculiarity of the country. Hanging a black pot on the house or applying vermilion on computers is a common practice.

A similar peculiarity can be found in the financial market. The muhurat trading is the result of an amalgamation of a rich heritage with modern market systems. Though financial markets are governed and operated by a set of modern rules and regulations, they are not living entities. Various participants like brokers, regulators, traders and investors make up the market and their beliefs provide character to the market. The practice of muhurat trading is a distinctive character of the Indian share markets.  

What is muhurat trading?

The muhurat trading is a special one-hour trading session allowed by the stock exchanges on the day of Diwali. A small session for bulk deals precedes the main session. All the trades executed during the muhurat trading session result in settlement. Buying and selling shares during the muhurat trading is considered to be auspicious by a large number of traders and stockbrokers. The symbolic trading session marks the beginning of the Hindu new accounting year, known as Samvat. The Hindu traditional year that will start this Diwali is Samvat 2077. The new Samvat is expected to bring growth for the market as India is likely to witness renewed economic momentum in the aftermath of the pandemic.    

Origin of the practice

Muhurat trading may sound like just another trading session, but it is not. The auspicious session holds immense value for millions of traders and investors. And why not? The muhurat session has its roots in Indian culture and beliefs. The muhurat trading session allowed by the stock exchanges is a modern iteration of an age-old practice. The history of the age-old practice is as important as the history of modern practice.

The Hindu new year has been an important milestone for trading communities in India for a long time. Traders and businessmen across the country change accounting books on the day of Diwali, which is the first day of the Hindu accounting year. It marks the beginning of the accounts for the new year. It is a common practice across communities involved in trade and business. Similarly, stock market traders perform the ‘chopda pujan’ to mark the beginning of the new financial year. It is believed that if you start a new year with a transaction, it will bring luck and prosperity throughout the year. Buying and selling of stocks is a form of transaction, which is executed with the blessings of Goddess Lakshmi, the Hindu goddess of wealth and prosperity.

Over the years, some community-specific beliefs related to the stock markets have become a part of the market lore. Gujaratis and Marwaris are two major communities operating in the Indian stock markets. It is believed that Gujratis buy stocks in muhurat trading while Marwaris sell. Marwaris believe that the money earned from selling stocks is Lakshmi and the goddess should enter the house on an auspicious day. On the other hand, Gujaratis buy to reap rich returns from the stocks. However, the belief may not hold true in modern times. Continuing with the auspicious ritual, The Bombay Stock Exchange allowed the muhurat trading session in 1957. The National Stock Exchange started the tradition in 1992. 

Should you participate?

The muhurat trading session holds immense significance in India. There are various advantages, sentimental and otherwise, of investing during the muhurat session. ‘Muhurat’ means auspicious in Hindi and any investment done during the auspicious time is considered to be profitable for the future. Since all trades executed during the muhurat session are to be compulsorily settled, stocks bought in the session are meant to be held. Many traders buy stocks during the muhurat session to hold for a long time and pass on to the next generation. Generally, the market has witnessed positive momentum during muhurat sessions, but the volumes have been observed to be low. The market fluctuation is minimal during the muhurat session, which can be utilised by serious participants to buy. However, it is advisable to conduct proper research before investing as people often make wrong calls amidst the festive fervour.  Just because it is a special trading session doesn't mean one should ignore the stock's fundamental or financial strength. It is worth noting that people buy stocks during the muhurat session for posterity. Stay away from companies that do not have quality management or business moat to survive in a competitive environment. Investing in stocks with questionable quality may spoil the festive mood.

Timings

The muhurat trading session is allowed by both the major exchanges for an hour. In 2020, muhurat trading will take place between 6.15 PM and 7.15 PM on Saturday, November 14. A small session for block deals will be allowed between 5.45 PM and 6.00 PM. Every year the block deal session preceded the pre-open session and the muhurat session. If you have made your mind to invest during the muhurat session, it is advisable to log into your trading account well before the official time. There could be increased traffic during the special session leading to system overload. 

Conclusion

The muhurat trading session has proven to be positive for investors on most of the occasions. Investing in shares during the auspicious window is believed to bring luck, wealth and prosperity and when it comes to the stock markets, a little divine blessing will do no harm!

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