Indian stocks saw a calmer finish on Thursday as traders adapted to a newly introduced closing auction system, easing recent volatility and prompting regulatory discussions.
Volatility in Indian equities eased on Thursday as traders adjusted to a new closing auction mechanism that has unsettled the market since its introduction at the start of the week. The Nifty 50 finished 0.05% higher, while the Sensex ended 0.48% higher at 78,954.76 points, a far larger move than the barely positive readings seen when regular trading ended at 3:15 p.m. IST. Analysts said the sharper late swing in the Sensex came as weekly derivatives tied to the index expired, adding to the noise around the new system. Reuters reported that this was the biggest closing move in the 30-stock benchmark since the change took effect on Monday.
The calmer finish followed several sessions of abrupt shifts at the close, especially in the Nifty, while the Sensex had been relatively steadier. Market participants said the split reflected heavy trading concentration on the National Stock Exchange of India and uncertainty over where stocks and indexes would ultimately settle under the new auction process. Options pricing also suggested that traders had already braced for the disruption, with premiums rising before the closing window opened and then moving less dramatically on Thursday.
The Securities and Exchange Board of India met top brokers on Wednesday and asked them to make sure the indicative equilibrium price was displayed continuously for investors, according to people with direct knowledge of the discussions. The regulator also urged brokers to draw more retail traders into the new closing window to improve liquidity. SEBI did not immediately respond to a Reuters request for comment. Raj Deepak Singh, vice president of derivatives and quantitative research at ICICI Direct, told Reuters that it is too early to judge the new methodology because markets need time to adapt.
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