80% chance stock market will beat pre-Muhurat blues

Mount 60K has proved to be quite slippery so far. The Sensex in the past 10 trading days has slipped over 2,400 points after closing at an all-time high of 61,765.59 earlier. The bellwether index has erased all the gains that it managed to garner in the month preceding the Muhurat trading scheduled on November 4. Bears seem to have tasted blood, sending bulls shivering back to their barns. But things can change soon.

Muhurat trading, a cultural and religious activity retained over the years by the broking community, is held during the evening hour on Diwali after performing Lakshmi Puja. If history is any indication, there is an 80 per cent chance Indian markets will soon beat the pre-Muhurat blues. Call it Muhurat magic, if you will.

A 25-year analysis of market performance in the month ahead and post the Muhurat trading session shows a switch in sentiment.

Up after a fall

Importantly, if the Sensex loses lustre in the month ahead of Muhurat, it gains 80 per cent of the time in the subsequent one month. This has happened in 1998, 1999, 2000, 2002, 2005, 2008, 2012 and 2014 (see table). On the other hand, if the trend is strong one month ahead of the Muhurat, the sentiment weakens in the month after the special trading session. This has happened in 1996, 1997, 2009, 2010, 2011 and 2013.

The recent correction in equity markets has put bulls in a corner, after a rip-roaring rally. Weak global cues, mixed corporate earnings and continuous selling by FIIs have fanned investor cautiousness. Half a dozen IPOs coming nearly at the same time has meant that investors may have also booked profits to invest in the primary markets.

From a one-month perspective, the Sensex may look like it is down only about 100 points, but declines have come at a sharp pace in the last few days. For instance, of the last 10 sessions, the Sensex has bled red on seven days. Premium valuations compared to long-term averages, investor fatigue and the absence of any meaningful correction in the last 10-12 months are reasons being highlighted to book profits. However, on the other hand, the economy picking up pace, Covid coming under control, with massive vaccination drive, and Indian equities offering among the best earnings growth prospects globally, strengthen the case for bulls.

Moreover, given that from 2015 to 2020 the trend in Indian markets didn’t change in pre-Muhurat vs post-Muhurat, bulls will also hope a mean reversion happens this year and sentiments swing.

Muhurat day trends

Coming to specifically the Muhurat session per se, the Sensex has mostly given positive returns on that day. In the 25 years analysed, markets have risen in 20 years, that is, 80 per cent of the times. The best one-day gains on Muhurat were seen in 2008 (up 5.9 per cent), 2005 (1.6 per cent), 2002 (1.25 per cent), 2001 (1.17 per cent) and 1999 (1.13 per cent). In five years i.e. 1997, 2007, 2012, 2016 and 2017, the Muhurat magic didn’t work.