Diwali is the festival of lights; it is symbolical to the victory of goodness over evilness. During the festive time, people worship Goddess of wealth, Lakshmi. It is believed that those who perform Lakshmi puja see their wealth growing. Dalal Street also celebrates Diwali and despite of Lakshmi Pujan being a public holiday, bourses are kept open for the "Muhurat" so that people can buy shares on this auspicious day. Old timers believe that shares one buys during "Muhurat Hours" always reward. In 1970s and 80s people used to buy stocks on the day of Muhurat and hold them for years. Many of them have reaped rich rewards, thanks to excellent returns markets have generated over last 2-3 decades.

However, times are changing. Markets have become turbulent and no trade is a sure-shot trade today. Still your broker must be sharing with you "tips" for Muhurat trading. As the day of Lakshmi puja comes closer, mails having titles such as "5 Stocks to buy this Diwali" start hitting your inbox frequently.

PersonalFN believes such emotional appeals are made only to lure investors to invest. You earn or you lose money, your broker earns his share every time you trade through him. We, at PersonalFN, observed that over last 5 years, Muhurat trading has not been as rewarding as you would expect it to be. Have a look at graphs below.

Sideways market movement...
(Source: ACE MF, PersonalFN research)

Graph on the left depicts that markets have been range-bound over last 6 years and that one on the right shows how trades performed even on the day Muhurat trading would have rewarded ordinarily over last 6 years. The index is up by about 11.2% on absolute basis since November 09, 2007 (Muhurat trading day) to October 30, 2013. This suggests that those who invested on the day of Muhurat trading in 2007 would have generated extremely ordinary returns. We took another case, where one would invest the same amount every year on the day of Muhurat trading, say Rs 10,000. Over past 6 years one would invest Rs 60,000 which would have grown to Rs 80, 115 thereby generating compounded annualised returns of 8.3% which are better than absolute returns of 11.2% generated by the index from the day of Muhurat trading in 2007. One of the primary reasons why would you get such disparity in returns is timing. In the year 2008, S&P BSE Sensex closed at 9,008 since markets were in the firm grips of bears. If you leave out the cost averaging effect on that day, you would have generated only 4.3% compounded annualised returns. This suggests than rather than Muhurat what drives markets is economic outlook and valuations. Those who invested in 1970s and 80s benefited by the market movement which has nothing to do with Muhurat.

Should you invest in stocks or mutual funds this Diwali?
S&P BSE Sensex has hit an all-time high on closing basis which has been the upper range of the market. In 2010 too, markets were trading at about 21,000-mark during Diwali but it took 3 years to see those levels again on the index. Sliding growth, falling rupee and high inflation affected market movements. All these worries are still far from over. Thus, PersonalFN believes investors shouldn’t get carried away by market exuberance and buy stocks and mutual funds aggressively. Instead, you may consider portfolio rebalancing if needed. Right Planning and intelligent asset allocation helps you growth wealth without depending on any Muhurat.

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