Last Updated on November 7, 2023 by BFSLTeam BFSLTeam
Diwali, the Festival of Lights, is a time of celebration, togetherness, and the triumph of good over evil. It’s a festival that transcends borders, religions, and cultures and holds a special place in the hearts of millions. Alongside the festivities, Diwali carries a unique significance in the world of finance and stock markets. Let us explore the relationship between Diwali and market performance, exploring historical trends, and the factors at play.
Additional Read: What is Muhurat Trading?
Table of Content
Diwali and the Stock Market
What makes Diwali more than just a traditional event is its profound influence on the stock markets. It’s believed that the performance of the stock market during Diwali is indicative of the financial prosperity that the coming year may hold. Investors and traders eagerly look forward to this period as they seek opportunities to align their financial strategies with the hope and positivity of Diwali. Lakhs of investors participate in the Muhurat Trading session which is deemed both auspicious and lucrative if done right.
Historical Trends
Historical data on market performance during Diwali provides interesting insights. Some analysts have observed a “Diwali Effect,” where the markets tend to perform well during the festive season. The reasons behind this trend can be attributed to several factors, including increased consumer spending, improved business sentiment, and seasonal investments.
The market often witnesses higher trading volumes and increased investment activity in the run-up to Diwali. Festive promotions, discounts, and offers by companies can drive consumer spending, which, in turn, positively impacts the performance of certain sectors, particularly consumer goods and retail.
Additional Read: Sector Wise Performance in Diwali season
Factors at Play
Several factors contribute to the Diwali Effect on the markets. Increased consumer spending during Diwali can boost the revenues and profits of companies in various sectors. It’s not uncommon to see companies launching new products or sales promotions to capture the festive market demand.
Moreover, the positivity and optimism that Diwali brings can have a psychological impact on market participants. Investor sentiment tends to be more favourable, driving higher trading activity. Seasonal trends often lead to a surge in investments, contributing to the overall market performance.
Past Performance
Let us consider the Diwali days of the ongoing decade, 2020-2023 to see the pattern, trend, and impact of this festival on the performance of the stock markets.
Diwali 2020 was unique, as it occurred during a period of ongoing global challenges. The COVID-19 pandemic has left its mark on economies worldwide, making Diwali celebrations more meaningful than ever. While there was optimism surrounding economic recovery, the uncertainties of the pandemic still loomed large.
During the Muhurat Trading session in 2020, the stock market reached new highs almost all across the board. Both the key stock indices, the S&P BSE Sensex and the Nifty 50 hit a (then) all-time high of 43,830.93, and 12,828.70 respectively.
In 2021, while the world was still reeling with the gloom of lockdowns, Diwali brought an upswing in the market with the S&P BSE Sensex rising almost 300 points and the Nifty 50 gaining close to 100 points.
During the Diwali Muhurat Trading in 2022, the S&P BSE Sensex leaped over 500 points while the Nifty 50 jumped by 150 points leading to a big gain in investor’s wealth.
As you can see, Diwali usually offers a ray of hope, and market participants eagerly await its positive impact.
Additional Read: Muhurat Trading Hours 2023
Expert Opinions
Opinions among financial experts vary regarding the Diwali Effect. While some believe in the positive influence of Diwali on markets, others consider it a short-lived sentiment that doesn’t necessarily reflect long-term economic realities.
It’s crucial to acknowledge that market behaviour is influenced by multiple factors, and Diwali alone cannot dictate the entire financial landscape. However, it remains a season that captivates the financial community’s attention and underscores the belief that optimism can drive financial markets
The Global Perspective
Diwali’s impact on the financial markets is not limited to India. The Indian diaspora and the country’s global economic influence mean that Diwali has a presence in international markets as well. Many financial centres around the world recognize Diwali’s significance, and the festival often resonates with global investors and traders.
Trading Strategies
For investors and traders, Diwali can present opportunities. Strategies may involve focusing on sectors that typically perform well during this season, such as consumer goods, retail, and technology. However, it’s essential to approach Diwali-related trading with a comprehensive understanding of market dynamics and individual investment goals.
Additional Read: Muhurat Trading Strategies
In Summation
Diwali, with its spiritual significance and the festive environment it creates, plays a unique role in influencing market sentiment. While historical trends and factors at play indicate a positive correlation between Diwali and market performance, it’s crucial to approach investments with a comprehensive strategy that aligns with individual financial objectives. Diwali serves as a reminder that sentiment and optimism can influence financial markets, but prudent investment decisions require a broader perspective.
Disclaimer: This blog is solely for educational purposes. The securities/investments quoted here are not recommendatory.
Investments in the securities markets are subject to market risk, read all related documents carefully before investing
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Sources:
https://economictimes.indiatimes.com/markets/stocks/news/sensex-has-made-diwali-happier-in-7-out-of-last-10-muhurat-trading-days/articleshow/95060491.cms#:~:text=2018%20has%20been%20the%20best,0.49%25%20or%20296%20points%20higher.
https://www.moneycontrol.com/news/business/markets/muhurat-trading-2023-bse-announces-diwali-trading-session-on-nov-12-11615641.html#:~:text=Both%20the%20Sensex%20and%20the,up%20by%200.49%20percent%20each.
https://www.bqprime.com/markets/pfx-muhurat-trading-2022-historic-sensex-performances-on-muhurat-trading-day
