NSE's New Closing Auction Causes Nifty-Sensex Divergence, Markets Low

Indian markets ended lower, with Nifty and Sensex diverging due to the NSE's new Closing Auction Session. This new mechanism caused increased volatility, described by experts as 'initial teething issues' expected to subside as the system matures.

Indian equity markets ended lower on Tuesday, with the divergence between the Nifty and Sensex continuing for the second consecutive session as the implementation of the National Stock Exchange's (NSE) new Closing Auction Session (CAS) continued to influence market closing trends.The Nifty 50 closed at 24,614.90, down 159.40 points or 0.64 per cent, while the BSE Sensex settled at 78,428.95, declining 210.08 points or 0.27 per cent.Activity during the Closing Auction Session (CAS) remained heavily concentrated on the National Stock Exchange (NSE). Of the total CAS turnover, the NSE accounted for Rs 1,542.4 crore, or 99.4 per cent, while the BSE recorded a turnover of Rs 9.4 crore, or 0.6 per cent.The most actively traded stocks during the closing auction on the NSE were Infosys, ICICI Bank, Bharti Airtel, Reliance Industries, HDFC Bank, Bajaj Finance, TCS, Mahindra & Mahindra, SBI and Wipro.The divergence comes a day after the NSE introduced the new closing auction mechanism for F&O-eligible stocks, under which closing prices are determined through a dedicated auction instead of the earlier Volume-Weighted Average Price (VWAP) method.In a statement, the NSE said that on a beta basis, www.nseindia.com has been modified to provide real-time information on the indicative equilibrium price for index constituents during the Closing Auction Session based on unmatched orders. The exchange said member terminals will continue to provide real-time details for the Closing Auction Session as before, while the final equilibrium price will be published after matching all orders at the end of the Closing Auction Session. It added that it plans to make the new arrangement permanent over time.

Expert Flags 'Teething Issues' in New System

Vinod Nair, Head of Research at Geojit Investments, said the combination of Tuesday's weekly expiry and the new mechanism for determining F&O closing prices distorted market trends."Tuesday's weekly expiry, combined with the implementation of the new mechanism for determining F&O closing prices, has led to a distortion in market trends. The significant gap between the 3:30 p.m. and 3:40 p.m. closing prices of Nifty stocks and the index, along with the divergence with Sensex, suggests that the new system is not functioning as intended, resulting in heightened price volatility," he said.He added that the increased volatility had triggered forced square-offs of positions, particularly among retail investors, ahead of the 15-minute blind derivatives window closing session.Nair, however, described these as "initial teething issues", saying the exchanges and the market regulator need to address the discrepancies. He said the impact is currently limited to the F&O segment and the main indices and does not reflect any fundamental structural concerns.According to him, the broader economic and financial outlook remains strong, and the current volatility is expected to subside as the exchanges return to their normal operating structure.

Sectoral and Global Market Performance

Among the sectoral indices on the NSE, Nifty Media was the top performer, gaining 2 per cent, while Nifty Metal rose 0.91 per cent. On the downside, Nifty FMCG fell 0.88 per cent, Nifty Auto declined 0.44 per cent, Nifty Pharma slipped 0.24 per cent, and Nifty PSU Bank edged lower by 0.08 per cent.Meanwhile, Brent crude oil prices declined more than 2 per cent to close at USD 85.66 per barrel.Asian markets ended mixed. Japan's Nikkei gained 0.35 per cent to close at 63,980, while South Korea's KOSPI advanced 1.60 per cent to 6,358. On the other hand, Hong Kong's Hang Seng fell 0.60 per cent to 25,854, and Taiwan's Weighted Index slipped 0.06 per cent to 43,360.(ANI)(Except for the headline, this story has not been edited by Asianet Newsable English staff and is published from a syndicated feed.)