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Informist, Thursday, Sept. 3, 2026

 

By Rajesh Gajra

 

MUMBAI - A major objective behind the Securities and Exchange Board of India's introduction of the closing auction session in the equity cash market was put to test at close Monday when Indian stocks in MSCI's indices got in or out, or saw their weights recalibrated upwards or downwards. The session passed the liquidity test on one particular event day, albeit at a cost. But on all other days the story has been different with the session recording extremely low trading volume since it was launched.

 

Mid-August, MSCI had announced stock inclusions and exclusions to its key global indices, including India-listed constituents, that came into effect from the close of trading Monday. SEBI had claimed the earlier closing price determination as the volume weighted average price of the last 30 minutes of the continuous trading session till 1530 IST made it very difficult for index funds and index exchange-traded funds to manage index tracking differences, particularly during event days such as index rebalancing and sudden major inflows or outflows by investors. It had claimed that this problem would be solved if the closing price were to be determined by an auction window of 10 minutes from 1520 IST to 1530 IST when only orders could be punched in, and the equilibrium price at the end would be the official closing price.

 

Monday, the first such major event day, saw the trading volume for the closing auction session shoot up on the National Stock Exchange to INR 397.18 billion, after having posted an average daily turnover of INR 12 billion from Aug. 3, when the closing auction session was launched, to Friday. "With the major event sailing through without much of a hiccup it will help shore up the confidence of institutional investors to increase their trading activity into the CAS (closing auction session) window," Tejas Shah, head of trading at Equirus Securities Pvt. Ltd., said.

 

NOT SMOOTH SAILING

There was sharp price volatility in the MSCI indices-affected stocks during Monday's closing auction session, with their final equilibrium price levels being 3?ove or below the reference price fixed at 1515 IST when the continuous trading session in the cash market had ended. For instance, Eternal Ltd. was the largest traded stock in Monday's closing auction session. Passive funds tracking MSCI's indices were buying Eternal's shares as the company's weightage was to be raised. But it came at a cost. The final closing price from the closing auction for Eternal was INR 328.10, almost 3?ove the reference price fixed at 1515 IST.

 

Astral Ltd.'s shares fell 3% during the closing auction session. The stock was getting excluded from MSCI Global Standard Indexes. This was largely due to the lack of wider participation in the closing auction session as was evident from the very low average daily trading turnover before Monday.

 

According to Rajesh Palviya, senior vice-president, research, and head of technical and derivatives at Axis Securities Ltd., if you are an institutional investor and have only 10 minutes to put in your large-sized orders to rebalance your portfolio on the index rebalancing day, you will have counterparties asking for the highest price for your purchases and offering the lowest price for your sales within the permitted price band of 3% in either direction. Monday's closing auction session did have some stocks that saw a spike in volatility due to the poor liquidity pool, Shah from Equirus said.

 

GOING FORWARD

The next big event, involving index rebalancing, will take place this month. The NSE Indices Ltd., a wholly owned subsidiary of National Stock Exchange of India Ltd., had announced recently its latest routine changes to the Nifty indices, due to take effect from Sept. 30. BSE Ltd. will replace Wipro Ltd. in the Nifty 50 index with effect from Sept. 30. Hitachi Energy India Ltd., Polycab India Ltd., Vedanta Aluminium Metal Ltd., and Vodafone Idea Ltd. will get included in the Nifty Next 50 index.

 

So, towards the close of trading Sept. 29, domestic index funds and exchange-traded funds tracking the Nifty 50, Nifty 100, and Nifty 200 indices are expected to realign their portfolios through the closing auction session. Shah expects the stock-specific volatility in closing auction sessions to remain till it sees "enhanced participation from all sets of investors".

 

Palviya from Axis said liquidity was better prior to the introduction of the closing auction session as traders were able to take trades on a continuous basis during the last 15 minutes of cash market trades and enhance the liquidity pool. Due to the nature of the closing auction session in which trading comes to a full halt in the cash market from 1515 IST to 1520 IST, and order punching is allowed between 1520 IST and 1530 IST, it will probably take much more than eventful days to attract the attention of retail traders.  End

 

Edited by Rajeev Pai

 

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