How to make your investment portfolio shine this Diwali

While the festival of lights is traditionally associated with new investments, a strategic approach will serve investors better, analysts say

People walk by statues of oxen ahead of Diwali. India's Nifty and Sensex indexes are in a broad bull phase after recently hitting all-time highs. AFP

When the cooler weather arrives, Indians begin to think about Diwali purchases. For investors, cultural tradition holds that the country’s biggest festival is an opportune time to start new ventures and acquire new investments.

“Starting a new investment during Diwali is considered auspicious and great for long-term prosperity,” says investment adviser Jagdish Golani, a senior executive consultant with Nexus Insurance Brokers in the UAE.

This year, the festival falls on November 12. As is customary, the main Indian stock exchanges usually open on the day for an hour outside scheduled trading hours. This session, referred to as Muhurat (auspicious) trading, takes place from 6.15pm to 7.15pm this year.

Total volumes remain low during these sessions, with traders often only making a token purchase.

But exchanges generally close in the green, partly because even occasional investors make a point of taking new positions during the session.

The BSE Sensex and the national Nifty50 both added about 0.9 per cent in the 2022 Muhurat trading session. Over the previous three years, they posted increases of about half a percentage point.

“Short-term traders should stay informed and be ready to change their plans at a moment’s notice,” Mr Golani says.

He highlights several financial themes for non-resident Indians this Diwali, from life insurance to real estate and stocks in banking, finance and technology companies.

“Life insurance is important because it can provide financial security for investors and their families in case of unforeseen events. For real estate, look for developers with special Diwali offers and study their track record,” he says.

“When it comes to the stock market, especially in India, banking and finance are common investment themes this Diwali, because the sectors are likely to benefit from a growing Indian economy."

The same goes for technology-related sectors, such as FinTech, e-commerce and artificial intelligence, which Mr Golani likens to investing in the future.

He suggests investing in an exchange-traded fund (ETF) that is focused on tech stocks.

Mr Golani advises all investors – regardless of risk appetite – to diversify their holdings across various instruments and asset classes.

Indian markets have broadly told a growth story since the pandemic, even as more mature jurisdictions have faltered.

Both the Nifty and Sensex indexes are in a broad bull phase after recently hitting all-time highs of 20,222 and 67,838, respectively.

Vijay Valecha, chief investment officer at Century Financial, calls it a “Goldilocks” effect.

“Currently, the market is reasonably valued, with the Nifty’s future price-to-earnings ratio close to its historical average. Historical data suggests that the Nifty tends to perform well at the conclusion of US recessions and during specific phases of Fed rate adjustments,” he adds.

The US economy went into a Covid-19 pandemic-linked recession in early 2020, but has since returned to growth. It clocked a better-than-expected 4.9 per cent expansion in the September quarter.

Mr Valecha believes there is cause for optimism going forward.

“The Indian stock market is expected to maintain its positive momentum in the latter half of 2023. While it’s not advisable to initiate new investments at this point, keep an eye out for potential market downturns [that] could present entry opportunities,” he says.

Watch: Diwali celebrations around the world

Brokerages from Morgan Stanley and Goldman Sachs to Nomura and CLSA are all currently overweight on Indian stocks.

Last month, Morgan Stanley said India was its most preferred emerging market, upgrading the economy to “standout overweight” and citing improving economic and earnings growth.

India’s economic outlook remains strong, says Charu Chanana, market strategist at online trading and investment specialist Saxo Bank, and the country could be a safe haven, with most major economies facing recessionary threats.

“Structural tailwinds from demography to urbanisation to a ramp-up of manufacturing and digitalisation have paved a path for India’s outperformance despite global headwinds,” she says.

Although inflation has been a concern in India, as it has been elsewhere, it is predicted to ease over the coming months, Mr Chanana says. That will provide room for the country’s equity markets to continue to outperform global indexes.

Interest will also come from foreign investors facing a slowing Chinese economy. Foreign funds pulling out of China markets have raised interest in Indian equities, a situation likely to continue in the face of the many geopolitical risks facing the global economy.

“Given India being a broad growth story, many sectors remain interesting, such as those that are consumption-linked like banking, travel or discretionary, or those that are development-linked like utilities or telecom,” Ms Chanana says.

“However, risks could emerge if oil prices rise again or the global economy enters a deep recession.”

Mr Valecha has also pointed to near-term challenges, driven by factors including fluctuating oil prices and inflation.

He believes the renewable energy sector is poised for rapid growth and feels India’s IT sector remains attractive.

Another major macro consideration this Diwali is India's general election, likely to be held next May.

Markets tend to be volatile in the months running up to national elections, because of uncertainty over outcomes and potential policy shifts.

Over the past five cycles, however, results have generally been positive. The average return over the year before an Indian general election has been 29.1 per cent.

Despite the recent pullback – markets corrected by more than 5 per cent in September and October – the outlook remains stable, given predictions of voters’ continuing faith in the government led by Prime Minister Narendra Modi.

“India has benefited from a politically stable environment for the past 10 years,” says Cherian Mathew, an instructor in forex, futures and stocks at the Online Trading Academy, a California-based financial education company with a branch in Dubai’s Knowledge Park.

“I wouldn’t expect too much volatility around the general elections next year. The broad market uptrend is likely to continue with the possibility of new all-time highs in 2024 and beyond."

He advises investors to follow a tried-and-tested investment strategy.

“Buying during auspicious occasions has served well for Indians in the long run, as India was and remains in a development phase. Then again, which stocks should one pick? That remains the biggest question of all,” Mr Mathew says.

It is something that resonates with Dr Shobha Deepak and her husband, Dr Deepak Kaltari. The Abu Dhabi physicians created a joint investment plan after their daughter was born 10 years ago. They also have a son aged seven.

After experimenting with real estate and stocks, the couple now keep things simple with mutual funds and ETFs domiciled in India, the US and other global markets. They have also set aside emergency funds and taken out health and term insurance plans.

“Our strategy is to keep finances extremely simple and easy to manage. Tomorrow, if I’m no longer there, even my seven-year-old kid should be able to manage the funds,” she says.

“And whether it’s Diwali or not, the investment philosophy doesn’t change. The 26th of the month is salary day, and that’s when I fund the mutual funds and ETFs.”

The couple capitalise on other traditions around the festival to declutter their finances and get rid of high-cost investments during an annual personal finance review.