An MSCI index rebalancing drove about $4.1 billion of trades during the NSE closing auction, nearly 40 times the average since the new system was introduced.
| Photo Credit:
FRANCIS MASCARENHAS

A quarterly MSCI rebalancing,
seen as the first major stress test for India's new stock
closing pricing system, drove about $4.1 billion ‌of trades on
the National Stock Exchange during the closing auction window on
Monday.

The exchange said the turnover was nearly 40 ‌times the
average since the new closing auction was introduced earlier
this ‌month ⁠and represented 21% of cash-market volume, reflecting
greater adoption after ⁠initial hiccups.

The closing auction is a roughly 20-minute auction during
which buy and sell orders are matched to determine a stock's
official closing price. Similar mechanisms are used in other
global ​and Asian markets, including China, ‌Taiwan, Hong Kong and
South Korea.

An MSCI index rejig, which takes effect on September 1,
spurred the higher interest in the auction, with the
stock-specific flows triggering sharp price swings, traders
said.

MSCI added four Indian companies: ‌Laurus Labs,
Lenskart, Adani Energy Solutions and Groww
to its global standard ​index, replacing Balkrishna
Industries, SBI Cards, and Astral.

The reshuffle also reduced the weight for billionaire Mukesh
Ambani's Reliance Industries and ⁠increased the weight
for Eternal.

"Flows-driven moves were always expected," said Anand James,
chief market strategist at Geojit Investments, adding that
volatility was restricted to a few ‌stocks as is the case
usually.

Reliance, which had risen 0.6% ahead of the closing auction,
saw its indicative prices falling 1.6% during the closing
auction, before settling 0.8% lower.

Eternal erased intraday losses of 3% at close.
Adani Energy fell 10.4%. SBI Card rose 0.6%
and Astral fell 0.7%.

The new system currently applies only to stocks that have
futures and options, leading to ‌muted moves in Lenskart
and Groww.

"MSCI-related flows are largely handled by foreign
institutional investors familiar with ​closing auctions from
other global markets, helping limit benchmark swings," said
Tejas Shah, head of trading at Equirus Securities.

Since its ⁠introduction, the new closing auction has led to
sharp swings, particularly on days ⁠when derivative contracts
expire.

Last Thursday, the Sensex's indicative close pointed to a
sharp 3.3% decline at one point during the closing ‌auction
session, which coincided with monthly derivatives expiry. The
index later came off to close 0.7% lower.

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