Summary of this article
Diwali fuels FOMO, overconfidence, and herding in investing decisions.
People often follow tradition, peers, or intuition over research.
Smart investing requires awareness, planning, and personal financial goals.
By Chakrivardhan Kuppala, Cofounder & Executive Director, Prime Wealth Finserv Pvt Ltd.
As Diwali approaches each year, we think about money differently. It's not just about acquiring new clothes, lighting diyas, or making our houses appear great. This is also a moment when people all throughout India seek to make huge money decisions. It's easy to understand why: It looks like Diwali is the best time to begin anything nice.
People say stuff like "shubh muhurat hai" and "Diwali ke din kuch lena toh banta hai." Everyone is really delighted. We think this is a fantastic moment to make money.
But we don't always realise that our sentiments are greater than they typically are. We might make decisions that don't necessarily make sense when we feel happy, hopeful, or afraid of losing out. Behavioural finance terms these practices "biases." During Diwali, three of them tended to grow extremely strong: FOMO (fear of missing out), overconfidence, and herding. Using some new data, let's look at how they operate and why they are more essential than we thought.
The Fear of Missing Out - Wrapped in Tradition
Buying gold rapidly was one of the most typical things individuals did before Diwali. For a long time, people have done this. On the other side, gold prices hit an all-time high in 2025. People in cities kept buying items, nevertheless. According to Reuters, several buyers merely modified how much they ordered so they wouldn't "miss the moment." For example, they chose pennies over diamonds or silver over gold.
People who make choices like this don't really care about the cost or the long-term value. It's all about time. The premise is that if I don't purchase today, I'll lose out on something big. That's how FOMO works.
We might argue this is about tradition or investment, but the truth is that we're frightened of being left out, especially when everyone else is doing it.
Investing in mutual funds is the same thing. SIP donations reached all-time highs in October and November 2024, even though the stock market had dipped a little in the weeks prior. Why would someone put more money into the market when it is going down? One explanation is that a lot of people were still thinking about how well the market had done lately, especially in the months running up to Diwali. It suddenly appears like a "don't miss" chance when you think of how exciting the end of the year is, the Christmas joy, and the prospect of a new beginning.
Some of this type of FOMO isn't so horrible. But if we only buy stocks because the calendar says to or because other people are doing it, we might not be making the greatest decisions for ourselves.
Too much faith: "I'll win this time."
Overconfidence: The Diwali Bonus Trap
During Diwali, it's not only about making smart investments. A lot of individuals also take significant risks at this time, especially when they trade.
Muhurat Trading is a famous tradition that takes place on Diwali night and lasts for an hour. It's a large holiday that typically finishes on a good note. Reuters estimates that the Sensex only rose risen 0.42 per cent in 2024. But there weren't a lot of sales. There wasn't any news or incident that was substantial enough to shake up the market. But a lot of people bought stocks during that hour.
Why? Because of faith. The idea is that buying anything at this "shubh muhurat" will bring you money over time. It's not about facts or research. It's all about luck, and that's when you start to feel too confident in yourself. This is a lot more perilous when you trade derivatives like options and futures. According to SEBI's own figures, more than 90 per cent of retail traders lose money in F&O. Their losses rose by 41 per cent in FY25 compared to the year before.
Even if these figures show otherwise, a lot of retail traders still assume they can "beat the system." They take more chances because they think they have more control, they receive Diwali bonuses, and they are pleased. They think that they or someone else can win again.
When we're too confident in ourselves, we assume we know what we're doing, even when the odds are blatantly against us. That confidence tends to be a lot stronger around Diwali.
Herding: The Need to Follow Others
Herding, or yearning to go with the flow, is another modest but strong force during Diwali.
The IPO market is a well-known example of this. The latter three months of the year are traditionally when a lot of IPOs happen, especially around Diwali. According to Reuters, the LG Electronics India IPO was completely subscribed on its first day of trading in 2025. People in town were talking about it.
But a year before that, something happened: by December 2024, half of the IPOs that year were worth less than they were worth. A lot of individuals lost money when they placed it into the market too soon around Diwali. But no one brings it up when they all want to join up right now.
We don't constantly think about whether or not this business is earning money, or "Which company am I putting my money into?" We say, "I should apply too, since everyone else is."
We emulate other people because it helps us feel comfortable. But when it comes to investing, what seems safe isn't necessarily the greatest option.
What Can We Do to Make This Better?
You don't have to avoid investing during Diwali. A lot of individuals should right now think about their money, create objectives, and make plans for the future. When you make a choice, it doesn't matter when; what counts is why you do it.
Are you purchasing gold because you want to get rich or because everyone else does?
Do you know what the company does when you buy an IPO, or are you just going by what other people say? Are you just going with your intuition when you trade stocks or options around Diwali, or have you thought about the risks?
Final Thought!
During Diwali, it's not a good time to lose control. Indeed, Diwali doesn't impact the markets. A date on the calendar isn't anything unique. We are the ones who alter things. We could feel stronger, more optimistic, and less watchful at times.
(Disclaimer: Views expressed are the author's own, and Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.)
