Key factors to keep in mind before this Muhurat trading session; watch out for these stocks

By Jyoti Roy

People across the country celebrate Diwali in several ways, and when it comes to making investments, several traders invest during a special ‘Muhurat’ to mark a new beginning. They do so during the festive season, as it is considered auspicious according to the Hindu lunar calendar. They often invest in gold, followed by equity markets, to bring good luck, prosperity, and the blessings of the goddess of wealth, Lakshmi. 

The BSE and NSE will be hosting Muhurat trading hour on Diwali, a tradition that has been followed since the 1950s. Investors are once again gearing up for a Muhurat trading session this Diwali, and it is prudent that they take some tips into consideration before they put their money in it. The markets usually get a boost on Diwali day during the trading hour, due to the token amounts invested by traders. To prepare for this hour, they have to keep the following recommendations in mind.

Buying into companies with a strong business model

There are many new investors who are keen to begin their stock market journey starting this Diwali. They are eager to make the most of the opportunity, however, a cautious approach with a long-term plan is always better than rushing into investment decisions. Financial advisors believe that for a festive occasion such as Diwali, it is optimal to purchase stocks from companies that exhibit a strong revenue and business model. 

They suggest that investors benefit by thinking about sustenance through stock buys. It is quite common for Muhurat trading to do well in the short-term, owing to the sudden infusion of capital into the market. However, if the interest is to stay in the game for the long haul, understanding the performance of strong companies will provide returns in the future. 

Avoid companies that indicated constraints in recent times

At least during a short trading session like the Muhurat hour, it is better to stay off companies that are undergoing crisis, or market fluctuations. It is often the case that even high-performing organizations face issues either due to problems in their business model, or lapses on the corporate governance front. The challenge lies in setting aside the well-renowned companies during this period, owing to the uncertainty in their performance, and the high risk nature of their stocks. One option would be to plan the resource spends in advance, so that there are no surprises while investing during the Muhurat trading session. 

Buy into a diversified portfolio across sectors

This bit of advice is valid even beyond Muhurat trading. Whether or not you invest during Diwali, the most common advice given to new and old investors alike, is to diversify the portfolio. If the idea is to be involved with the markets for the subsequent years, this is a feasible option. It allows retail investors to mitigate risks, and balance out losses and gains whenever the market is volatile. To tackle risks in the market overall, it is necessary to invest across asset classes and minimize the damage i.e. during an economic downturn. 

Your portfolio should be a mix of growth and value stocks

Beyond the general idea of diversifying ones portfolio across asset classes and sectors, it is better to avoid putting all eggs in one basket, with respect to the type of stocks as well. An assortment of stock options ensure that there is enough fire power for growth stocks to perform well in the long run, as per their future potential.

On the other hand, value stocks are easy buys at the given moment due to their low value, as they also hold the promise of better returns. The portfolio must consist of both large-caps and mid-cap stocks, and they should be bought following a thorough risk profile assessment. Further to this, investors must also be cognizant of equity exposure. They have to ensure that their equities are in line with the long term financial goals and asset allocations. 

Sectors and shares to watch-out for

Going forward we expect the broader markets will do well as compared to the benchmarks and within broader markets cyclical should do well given revival in earnings in FY22. However we expect the recovery to be uneven with different sectors charting out different recovery path. Within cyclical sectors we are positive on Auto, cement and low ticket consumer durable as demand has rebound at a much faster rate and is expected to remain strong. We also expect sectors with revenue visibility will continue to do well. We expect sectors like Agrochemicals, chemicals, two wheelers and tractors along with IT and Pharma will continue to do well given strong growth dynamics

Within the above mentioned sectors HCL Technologies, Metropolis Healthcare, Hawkins Cookers, and Galaxy Surfactants are our top picks given strong business models and revenue visibility going forward.

(Jyoti Roy, is DVP and Equity Strategist at Angel Broking Ltd. The views expressed are the author’s own. Please consult your investment advisor before investing.)