India’s stock indices continue to show a widening gap as traders adapt to a new closing auction system, highlighting ongoing adjustments amid market volatility and evolving price discovery practices.
India’s benchmark stock indices extended their split for a fourth straight session on Thursday as traders continued to adjust to a new closing auction system for shares with derivatives contracts. The gap between the Sensex and the Nifty reached 0.43 percentage points, underscoring how the change in end-of-day price discovery is still rippling through the market.
At 3:15 p.m., the Nifty was at 24,628 before finishing at 24,636, a modest 0.03% gain in the final stretch. The Sensex, by contrast, moved more sharply, rising from 78,785.6 at 3:15 p.m. to 78,954.8 by the close, a 0.21% increase over the last 20 minutes. Market participants said the stronger move in the Sensex was linked to the expiry of weekly derivative contracts on the index.
According to Chandan Taparia, head of derivatives and technical research at Motilal Oswal Financial Services, thin participation in the closing auction has meant that a relatively small number of orders can have a larger-than-usual effect on the final index print. He said Thursday’s weekly Sensex expiry drew more auction interest in BSE-listed stocks, while the Nifty was steadier because similar activity was not seen on the NSE.
The new closing auction session, introduced for eligible stocks with futures and options contracts, runs from 3:15 p.m. to 3:35 p.m. and replaces the earlier practice of using the volume-weighted average price from the final 30 minutes to calculate closes for those shares. Securities without derivatives continue to use the old method. The change is intended to improve price discovery and bring India’s closing process closer to global market practice.
Volatility also picked up slightly. India VIX, the market’s fear gauge, rose 0.8% on Thursday to 12.15 and is up 3.4% for the week so far. Kamlesh Shroff, president of the brokers’ forum ANMI, said the divergence reflects a learning curve as traders adapt to the new system. He added that once market participants become more familiar with the process, participation should broaden and the gap should narrow, with August likely to mark the completion of a full weekly and monthly settlement cycle under the new framework.
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