Navigating the Complexities of Muhurat Trading: Insights and Strategies for Diwali 2024
The Indian equity market has been on a rollercoaster ride in recent times, marked by unprecedented highs and sudden downturns. As we reflect on Samvat 2080, it is clear that this year has been exceptional in many ways. The market consistently reached new milestones, with the Nifty 50 index hitting an all-time high of 26,216 on September 26, 2024. This achievement not only underscored the strength of the Indian economy but also propelled the market’s total capitalization beyond the $5 trillion mark, positioning it as the fourth largest globally. However, the exuberance was short-lived as October witnessed a sharp decline, with the Nifty 50 dropping by 7%. This correction, more severe in the broader market, signals a period of caution and reevaluation for investors and traders alike.
In the face of such volatility, technical analysts like Kapil Shah from Emkay Global have stepped forward to offer their insights. Shah emphasizes the importance of caution as we transition into Samvat 2081, particularly during the festive season of Diwali 2024. He advises traders and investors to consider taking profits during upward price movements, a strategy that could help mitigate risks in a turbulent market. Shah’s analysis reveals that the Nifty 50 has experienced seven major uptrends since the inception of the National Stock Exchange (NSE), each lasting between 26 to 56 months. Notably, six of these rallies spanned 40 to 56 months, suggesting that the current 54-month rally may have reached its maturity.
The technical patterns observed in the Nifty 50 charts further support a cautious approach. A bearish engulfing pattern, which historically has bearish implications, has appeared on the monthly chart. While this pattern often precedes a decline, it is not always a harbinger of doom; sometimes, the index experiences only a brief dip before resuming its upward trajectory. Nonetheless, Shah predicts continued selling pressure in November, driven by the formation of significant peaks characterized by an ‘M’ pattern. This formation typically unfolds over a minimum of four months, indicating that the current correction may persist.
Adding to the complexity are the head and shoulders and inverted flag patterns that have emerged in the Nifty 50 index, both of which are traditionally seen as bearish indicators. These patterns, coupled with a rapid 6.5% decline over just 17 trading sessions, underscore the need for prudence. Shah suggests that traders and investors remain vigilant, especially if the index breaches critical thresholds. The seasonality table, which highlights the historical performance of various sectors, serves as a useful tool for making informed decisions. However, Shah cautions that technical verification should precede any investment moves based on this data.
As we delve deeper into the dynamics of Muhurat trading, it becomes evident that this tradition is steeped in cultural significance. In India, business is intrinsically linked to festivals, rituals, and religious customs. Diwali, the festival of lights, holds a special place in the hearts of traders and investors. It is considered an auspicious day for conducting business, making investments, and seeking prosperity. Despite being a national holiday, the stock market opens for a special session known as ‘muhurat’ trading. This window, offered by both the National Stock Exchange and the Bombay Stock Exchange, is rooted in the belief that conducting business during this time can bring good luck and success.
The term ‘muhurat’ itself refers to an auspicious time in Hindu culture, determined by astrological calculations. This tradition has been passed down through generations and has become an integral part of Indian business culture. During this special trading session, traders often participate in prayers led by spiritual leaders, seeking blessings for a prosperous year ahead. The stock market also engages in puja rituals, offering tribute to Goddess Lakshmi, the deity of wealth and prosperity. For many traders, ‘muhurat’ trading represents an opportunity to make a symbolic gesture of starting the year on a positive note, balancing spiritual and material pursuits.
While the festive atmosphere during ‘muhurat’ trading day adds to the positive sentiment in the market, it is not without its critics. Some argue that this tradition is based more on superstition than on empirical evidence. They contend that business decisions should be grounded in facts and rigorous analysis rather than astrological predictions. Despite these criticisms, ‘muhurat’ trading continues to be a popular ritual among Indian traders and investors, highlighting the unique blend of culture and business practices in India. It serves as a reminder of the deep-rooted connections between commerce and tradition in the Indian context.
Amidst the festivities and traditions, the question of investment strategy during Diwali 2024 looms large. Reports of promising returns have fueled optimism, yet the recent market correction has left many investors anxious about their portfolios. In light of SEBI’s regulatory actions and the potential for a market downturn, it is crucial for investors to reassess their strategies. One prudent approach is to lighten up portfolios by divesting underperforming stocks. This strategy, famously termed ‘selling down to the sleeping point’ by JP Morgan, advocates for reducing holdings until one can sleep soundly at night, free from market-induced stress.
The concept of the ‘sleeping point’ varies among investors, influenced by individual risk tolerance and reward expectations. By adopting this strategy, investors can prepare for potential market declines while minimizing stress. Meanwhile, financial experts at Equitymaster are poised to capitalize on any market corrections. Armed with comprehensive watchlists, they stand ready to publish buy recommendations when opportunities arise. Equitymaster provides valuable tools such as stock screeners and company factsheets, empowering investors to analyze company performances and make informed decisions.
Yash Vora, a seasoned financial writer at Equitymaster, offers his insights into market trends and dynamics. Having followed the stock market since his college days, Vora possesses a keen eye for identifying market movers. His expertise, combined with a passion for playing table tennis and chess, reflects a balanced approach to both work and leisure. Equitymaster’s team is dedicated to providing readers with timely information on IPOs, fund flows, and economic data, ensuring that investors are well-equipped to navigate the complexities of the market.
In conclusion, the landscape of Muhurat trading during Diwali 2024 presents both challenges and opportunities. As the Indian equity market grapples with volatility and uncertainty, it is imperative for traders and investors to exercise caution and adopt sound strategies. By understanding the cultural significance of Muhurat trading and leveraging technical insights, investors can make informed decisions that align with their financial goals. Whether embracing the auspiciousness of the festival or relying on empirical analysis, the key lies in striking a balance that fosters both prosperity and peace of mind in the year ahead.