• Diwali's Muhurat Trading is a special one-hour session for stock market investment, believed to bring prosperity.
• Originating in 1957, Muhurat Trading has shown positive returns in 9 out of the last 11 sessions.
• Despite the auspiciousness, the period following Muhurat Trading has seen the index fall in 7 of the past 11 years.
• As Diwali 2024 approaches, investors anticipate the Muhurat Trading session with both optimism and caution.

Diwali, one of India's most celebrated festivals, is not only a time of joy and fervor but also holds a unique significance for the financial markets. The festival marks the beginning of the new Samvat, or Hindu New Year, and is viewed as an auspicious time for investors. This belief is symbolized by the traditional 'Muhurat Trading' session held annually on Diwali.

The Muhurat Trading session is a special one-hour window where investors can invest in the stock market. This tradition is deeply rooted in the belief that trades made during this auspicious period draw prosperity for the year ahead.

In 2024, the Muhurat trading session is scheduled for the evening of November 1, allowing participants to trade between 6 pm and 7 pm. While trading activity is paused during the daytime, all segments of the market, including equity and derivatives, are open for normal trading during the Muhurat session.

The History and Evolution of Muhurat Trading

The tradition of Muhurat Trading has a long history, with its origins dating back to 1957 when it was first introduced on the Bombay Stock Exchange (BSE). The practice was later adopted by the National Stock Exchange (NSE) in 1992. Before the advent of electronic demat accounts, traders would gather on the exchange floor to mark this symbolic trading session.

Over the past 11 years, the Muhurat Trading session has shown positive returns in 9 out of 11 sessions, consistently performing well since 2018, with only 2016 and 2017 seeing slight downturns. In 2023, the Sensex rose by 355 points (0.55%), reaching 65,259, while the Nifty 50 gained 100 points (0.52%), closing at 19,525. Midcap and smallcap indices outperformed, with the BSE Midcap index up by 0.67% and the Smallcap index by 1.14%.

Muhurat Trading: A Blend of Tradition and Financial Strategy

Despite the positive returns during the Muhurat sessions, the period following these sessions has been less favorable, with the index falling in 7 of the past 11 years. However, the belief in the auspiciousness of Muhurat Trading remains strong among investors, symbolizing a blend of tradition and optimism. It provides a rare opportunity to align financial goals with cultural significance, as the nation steps into a new Samvat year with hope for prosperity in the markets.

The Muhurat Trading session is not just about equity and derivatives. It also includes trading in 'illiquid' securities, which are not frequently traded, based on specific criteria outlined by the exchange. Furthermore, traders and investors are allowed to place orders at the market's closing price during this special session.

The tradition of Muhurat Trading is believed to have been started by King Vikramaditya, who believed that commencing Diwali Muhurat Trading would bring prosperity to his kingdom. Over time, it evolved into a cherished custom among traders. Today, investors and traders can engage in derivative transactions as part of the overall Muhurat Trading experience.

However, it's important to note that while Muhurat Trading is a time of optimism and prosperity, it's also a time of caution. A study by the Securities and Exchange Board of India (Sebi) revealed that nine out of 10 individual traders lost money in the futures and options (F&O) segment of the stock market during FY24. This underscores the need for retail investors to exercise caution and make informed decisions during this auspicious trading session.