Diwali is more than a festival of lights in India — it’s also one of the fixed points in the financial calendar that every trader keeps an eye on. The stock exchanges in India don’t just “take the day off” — there’s a tradition, a symbolic trading session, and some subtle shifts in market behavior.
If you trade or invest in Indian markets (or follow them closely), it pays to understand how Diwali affects market operations, sentiment, and the opportunities (and pitfalls) around that time. Let’s get into it.
What Happens to the Stock Market on Diwali?
Full Market Holiday (Mostly)
On the day of Diwali Laxmi Pujan, both the NSE and BSE declare a full trading holiday.
That means no regular trading — no opening bell, no intraday flow, no normal order matching.
But here’s the interesting part: even though the market is officially closed, exchanges often run a special session known as Muhurat Trading.
Muhurat Trading: The Symbolic Session
Muhurat Trading is a short, special hour (or so) when the market technically “opens” for symbolic trades.
- It usually takes place during a favorable time (an auspicious moment) in the evening on Diwali day.
- The idea is not heavy speculation or massive volume. Many participants trade small amounts as a ritual — a gesture to start the new financial year on a positive note.
- It’s partly tradition, partly sentiment. And though volumes can be lower than regular days, it often draws interest because of the cultural significance.
So you get a day off from usual trading, plus a short window where symbolic trades happen. That’s the pattern around Diwali.
In 2025, for example, the stock exchanges are closed on October 21 for Diwali Laxmi Pujan, and a Muhurat session will be held that day.
Also, October 22 is a holiday for Balipratipada, another festival around Diwali.
Why It Matters (Beyond the Holiday)
You might think, “Okay, markets close — so what?” But there are a few important things that happen around this time that traders should be aware of.
1. Sentiment & Symbolism
Muhurat trading is deeply symbolic. Many retail investors use it to buy small stocks or assets they believe will bring luck or prosperity. The positive sentiment can spill over to the days following the festival. Traders sometimes watch patterns on this day to gauge early sentiment for the upcoming season.
2. Volumes & Liquidity Distortions
Since Diwali is a holiday and Muhurat is a short session, liquidity tends to be low. A few trades in a symbol can move it more than usual. This makes interpretation trickier if you see big moves — they may be exaggerated.
Also, because institutional players and algorithmic systems may be subdued, market moves on that day or nearby days can be more volatile or erratic.
3. Technical & Calendar Effects
Some technical traders believe that the time around Diwali is a period of recalibration: many portfolio managers and institutional traders take a break, review positions, and return with fresh views. Thus breakout or reversal plays might emerge just after the holidays.
Also, the holiday may shift how many trading days remain in a month, affecting strategies that depend on end-of-month flows or monthly closing price behavior.
4. Execution & Order Planning
Because you know ahead of time that the market will be closed, you have to plan your trades — especially orders that rely on overnight hold or expected news flows. You can’t “leave a trade running” through Diwali unless you explicitly structure it for post-holiday action (if that’s allowed in your trading style).
And if you want to participate in Muhurat Trading, you should check the timing in advance (exchanges announce it) and decide whether you’ll treat it as a symbolic move or a legitimate trade with risk.
How to Strategize Around the Diwali Holiday
Knowing the theory is good; applying it is better. Here’s how you can use Diwali knowledge to plan better.
A. Treat Muhurat Trades Carefully
If you’re participating in the Muhurat session:
- Use small position sizes. The market is not at its most efficient then, so risks are higher.
- Choose stocks you already know well — avoid random picks just because “it’s Diwali.”
- Be aware that getting in with expectations of big moves may backfire — many participants use it for symbolic, modest trades.
B. Adjust Risk Tolerance & Stop Placement
Around holiday-adjacent days (day before or after), volatility can be unpredictable. Extend stops slightly to avoid whipsaws, or reduce position sizes so you’re less exposed to random gaps.
C. Don’t Overreact to Holiday “Bump”
If you see a strong move just before or just after Diwali, ask yourself: is this sustained trend starting, or a holiday distortion? Wait for confirmation.
If you anticipate market strength after the holiday (based on sentiment or fund flows), plan your entries after open, not at the first knee-jerk move.
D. Watch for Sector or Theme Plays
Sometimes certain sectors or stocks gain more attention around festivals (e.g. consumer goods, jewelry, lights or LEDs, home decor) because these tie into festive spending in the real world. That doesn’t guarantee a trade, but it’s something to monitor.
E. Plan Your Calendar
- Mark the holiday and the Muhurat session well in advance.
- Don’t schedule trades that require heavy monitoring or exploiting overnight gaps across the holiday unless you’re prepared.
- Use the downtime (when markets are closed) to review, plan, and refine your watchlist or setups for when trading resumes.
Possible Pitfalls & What to Watch Out For
- False signals: A big up bar in a short session might look like a breakout but be unfairly amplified by low volume.
- Overconfidence from sentiment: Just because there’s a positive mood doesn’t mean every trade will win.
- Lack of liquidity: Many traders are away or in holiday mode — directional moves can overshoot or reverse sharply.
- Order execution risk: On the day before and after the holiday, slippage, delayed fills, or partial fills can be more likely.
A Sample Trader’s Diwali-Period Plan
Here’s how a moderately active trader might plan around Diwali:
- One week before:
- Tighten your watchlist. Focus only on your highest-probability setups.
- Lower position sizes in trades that extend into the holiday.
- Day before Diwali:
- Don’t open new big trades that depend on intraday noise or overnight gaps.
- Move stop losses to more conservative levels to protect gains.
- Diwali Day (Muhurat session):
- If you plan to trade, limit yourself to 1–2 positions.
- Use symbols you already have conviction in.
- Keep expectations modest.
- Day after Diwali (market resumes):
- Be extra cautious in the first hour — the market may overshoot or react strongly.
- Wait for confirmation before diving into new trades.
- Review how your Diwali-day trades behaved and log insights.
Why Diwali Holiday Is More Than Just a Break
For Indian markets, Diwali isn’t just a public holiday. It’s woven into cultural and financial traditions:
- Investors often see Muhurat trading as auspicious, a clean slate, a symbolic “new start.”
- It provides a mental reset, a chance to pause and reflect, especially if the year has been volatile.
- Because everyone knows it’s coming, the effect is baked into sentiment and positioning in advance.
In that sense, Diwali is like a built-in checkpoint in the year — a forced pause from the noise, but also a moment many traders and investors watch closely. For someone serious about markets, that makes it a feature, not just a holiday.
