How to trade on yearly closing in India?

Yearly Closing in the Indian stock market is a crucial time for investors and traders. This is when the entire financial year’s market activities are analyzed, and strategies for the upcoming year are formulated. Yearly Closing helps investors understand which stocks have performed well and which have declined.

During this period, institutional investors (FIIs and DIIs) adjust their balance sheets by buying or selling, leading to market volatility. Additionally, companies focus on stock valuation while preparing their annual financial reports, causing significant movements in certain stocks.

For long-term investors, this is an excellent opportunity to review their portfolios and add stocks with strong potential. Meanwhile, short-term traders can capitalize on the fluctuations that occur during Yearly Closing.

In this article, we will discuss effective trading strategies during Yearly Closing, the role of technical and fundamental analysis, and risk management techniques. Additionally, we will explore key factors to consider when trading during this period to maximize returns on investments.

What is Yearly Closing in the Indian Stock Market?

Yearly Closing in the Indian stock market refers to the final trading session of the financial year, where the last recorded prices of stocks are considered as the closing prices for that year. In India, the financial year begins on April 1 and ends on March 31, making the last trading day of March the official Yearly Closing. This day witnesses significant market activities, as investors, companies, and institutional players review their annual investment goals and adopt new strategies.

Yearly Closing holds great importance because companies finalize their financial records, providing investors insights into their economic health and growth prospects for the coming year. Additionally, fund managers and institutional investors (Foreign Institutional Investors – FIIs and Domestic Institutional Investors – DIIs) make large-scale transactions to strengthen their balance sheets, leading to sudden market fluctuations. 

Another key aspect observed during this period is Tax-Loss Harvesting, where investors sell underperforming stocks to minimize their tax liability. This can cause temporary dips in some stocks, which intelligent investors can leverage to their advantage. Moreover, Yearly Closing is not just about individual stocks but also about broader market indices like NIFTY 50 and SENSEX. Their performance can signal potential trends for the upcoming financial year.

In summary, Yearly Closing serves as a crucial phase for investors and traders to reassess their investment strategies, rebalance portfolios, and identify new opportunities.

Benefits of Trading During Yearly Closing

1. Analyzing Long-Term Trends

During Yearly Closing, the market’s performance over the past year is reviewed, helping investors make informed long-term decisions. It provides insights into which stocks have consistently performed well and which ones have declined. By analyzing past trends, investors can identify sectors with strong potential for the next financial year. Additionally, technical analysis helps determine key support and resistance levels, assisting in better entry and exit points.

2. Impact of Budget and Government Policies

The Indian stock market is heavily influenced by the annual budget and government policies. Changes in tax structures, new financial plans, and sector-specific incentives shape market trends. For example, if the government announces policies favoring infrastructure, green energy, or digital sectors, companies in these domains may see a surge in stock prices. Traders and investors can analyze these factors during Yearly Closing to build effective strategies for the upcoming year.

3. Institutional Investors’ Activities

At the end of the financial year, institutional investors (FIIs and DIIs) adjust their portfolios and rebalance their holdings, leading to high volatility in the market. This can result in unexpected surges or declines in certain stocks. If large institutional investors are accumulating a stock, it may indicate strong future growth potential. On the other hand, if they are exiting a particular stock, it could signal potential weakness in that sector.

4. Tax-Loss Harvesting Opportunities

Towards the end of the financial year, many investors sell loss-making stocks to optimize their tax liabilities, a strategy known as Tax-Loss Harvesting. This practice leads to a temporary decline in some stocks, presenting a buying opportunity for long-term investors. If a fundamentally strong stock drops solely due to tax-related selling, it can serve as an excellent entry point for long-term gains.

Trading Strategies Based on Annual Closing

(i) Trend Analysis and Technical Charts

• Studying past years’ charts during annual closing is essential to understand the long-term market trend. This analysis helps traders identify which stocks have consistently performed well and which have declined.

• Using the 50-Day and 200-Day Moving Averages can help determine how a stock is behaving around its long-term support and resistance levels. If a stock is trading above its annual closing, it could be a potential bullish signal.

• Utilizing technical indicators like RSI (Relative Strength Index) and MACD (Moving Average Convergence Divergence) can be beneficial, as they help identify possible trend reversals or breakouts in the market.

• Techniques like Fibonacci Retracement and Bollinger Bands can be used to estimate the price range within which a stock might trade.

• Market volatility is often higher during annual closing, so using strategies like stop-loss and trailing stop-loss is crucial.

(ii) Select Fundamentally Strong Stocks

• Investing in fundamentally strong companies is generally safer, as they can better withstand market volatility. Identifying such stocks requires analyzing financial metrics like P/E Ratio, Debt-to-Equity Ratio, and Return on Equity (ROE).

• Analyzing annual and quarterly financial reports helps understand a company’s revenue, profit, and expense trends. Looking at a company’s past five years’ data can provide insights into its growth potential.

• If a company is consistently profitable and its Earnings Per Share (EPS) is increasing, it indicates strong growth and can be considered for long-term investment.

• Evaluating a company’s management strategies, new projects, and industry positioning is essential. A company with strong leadership usually performs well even in challenging times.

• Dividend yield should also be considered, as companies that regularly pay dividends are typically stable and reliable.

(iii) Monitor Volume and Volatility

• Market liquidity is high during annual closing due to large transactions by institutional investors (FIIs and DIIs). Understanding these trading patterns can help identify good opportunities.

• Volume analysis helps determine whether a stock’s trading volume has suddenly increased or decreased. A significant increase in volume could indicate interest from large investors.

• Analyzing the Volatility Index (VIX) helps gauge the market’s volatility level. A high VIX suggests increased market fluctuations.

• Keep an eye on stocks that show a natural breakout or trend reversal during annual closing.

• Taking advantage of volatility through options trading can be beneficial, but it carries higher risk, so proper risk management is essential.

(iv) Sector Watch and Budget Impact

• Understanding which sectors are likely to receive government support in the next financial year is crucial. For example, if the government plans to boost infrastructure or renewable energy, stocks in these sectors could see an uptrend.

• Based on budget announcements and monetary policies, it is important to monitor sectors like banking, automobile, pharma, and IT, as they are often directly affected by economic decisions.

• Analyze companies that could benefit from government schemes, subsidies, or tax rebates during annual closing.

• If foreign investors are showing increased interest in a particular sector, it could be a positive sign for investment.

• The impact of the global economy should also be considered, as policies from the US, China, and Europe can influence the Indian market.

(v) Develop Long-Term and Short-Term Investment Strategies

• For long-term investors, choosing companies that are closing near their 52-week high and have a strong growth story can be beneficial.

• If a stock is trading near its key support level during annual closing, it could be a good opportunity for long-term investment.

• Short-term traders should look for intraday and swing trading opportunities. If a stock is experiencing rapid movement with volume support, short-term positions can be taken.

• Trading strategies should be based on support and resistance levels. If a stock’s annual closing breaks a strong resistance, a breakout is likely.

• Risk management is essential—set stop-loss for every trade and avoid excessive leverage to minimize risk.

What to Avoid During Annual Closing Trading?

1. Avoid Emotional Trading

Many investors and traders make decisions based on emotions during the rapidly changing market of annual closing. Emotions like fear and greed often lead to wrong decisions. If a stock’s price is rising suddenly, do not invest just because of the “Fear of Missing Out” (FOMO). Similarly, do not panic and sell a stock just because it is declining. Always base your decisions on data and research rather than rumors or herd mentality.

2. Avoid Investing in Low-Liquidity Stocks

Some stocks have very low liquidity, meaning they cannot be easily bought or sold. During annual closing, when market volatility is high, investing in such stocks can be risky. Low-volume stocks can experience sudden large movements, making it difficult for you to exit at the right price. Therefore, before investing in such stocks, carefully analyze their trading volume and market capitalization.

3. Do Not Trade with Excessive Borrowing

Margin trading, where trading is done by borrowing from a brokerage firm, can be highly risky during annual closing. Market fluctuations are higher during this period, and a wrong prediction can result in significant losses. If you trade on borrowed money and the market moves against your expectations, you may suffer heavy losses. Hence, always trade only with the capital you can afford to lose.

4. Properly Diversify Your Portfolio

Investing only in one sector or a few selected stocks can be risky, especially when the market is unstable. For example, if you have invested only in the technology sector and it declines, your entire portfolio will be affected. Therefore, distribute your investments across different sectors and asset classes so that even if one sector falls, your overall losses remain minimal.

5. Do Not Choose Stocks Solely Based on Past Performance

Many investors try to invest in stocks that performed well in the previous year during annual closing. However, it is not guaranteed that a stock that rose last year will deliver good returns in the coming year. Always consider the stock’s fundamentals, industry trends, and future potential before investing. Making decisions solely based on past data can lead to poor investment choices.

6. Do Not Ignore Overall Market Sentiment

During annual closing, many investors focus only on their portfolio and ignore broader market trends. Before investing in any stock, analyze the movement of key indices like Nifty, Sensex, and other major indicators. If the market is in a bearish phase or global factors are negative, rushing into an investment can result in heavy losses.

7. Avoid Overtrading

Many traders try to maximize their profits during annual closing by trading excessively. However, attempting to profit from every market movement can increase transaction costs (brokerage, taxes, etc.) and the chances of making wrong decisions. Avoid frequent buying and selling unless there is a strong reason for it.

8. Do Not Rely Entirely on a Single Investment Advisor or Tips

Nowadays, many investors follow stock market tips from social media, Telegram groups, or other platforms. However, every investor has a different strategy and risk profile. Before blindly following any tip, conduct your own research. If you trade solely based on others’ advice, you may end up facing significant losses.

9. Do Not Make Poor Tax-Saving Decisions During Annual Closing

Some investors sell loss-making stocks at the end of the financial year to save on taxes, a strategy known as “tax-loss harvesting.” However, this may not always be the right approach. If a stock has strong fundamentals and good future growth potential, selling it just to save taxes can be a bad decision.

10. Do Not Mix Short-Term and Long-Term Investment Goals

During annual closing, many investors confuse long-term and short-term investments. If you are trading for the short term, focus on quick profits, whereas long-term investors should remain patient. If you have bought a stock for the long term, do not panic over minor fluctuations. Keep your strategy clear and set investment objectives in advance.

Conclusion

Annual closing is a crucial time in the Indian stock market when investors can reassess their strategies and look for new opportunities. If you adopt the right analysis and strategies, trading during annual closing can be beneficial. Trade smartly, manage risks, and make decisions keeping your financial goals in mind.