New closing auction system: Sensex-Nifty divergence persists for 4th day

The gap between the Sensex and Nifty continued for a fourth session as investors adjusted to the new closing auction mechanism for stocks with derivatives contracts

The divergence between India’s benchmark stock indices continued for the fourth consecutive day as investors grappled with changes to the price-discovery mechanism for stocks with futures and options contracts. The divergence between the Sensex and the Nifty stood at 0.43 percentage points.

 

At 3:15 p.m., the Nifty stood at 24,628 but ended Thursday’s session at 24,636, a gain of 0.03 per cent from its pre-closing-auction level. The Sensex was at 78,785.6 at 3:15 p.m. but ended the session at 78,954.8, an increase of 0.21 per cent during the final 20 minutes. The sharper move in the Sensex was driven by the expiry of weekly derivative contracts linked to the index.

 

“Participation in the closing auction remains thin, allowing a relatively small concentration of orders to have an outsized impact on the final index level. On Thursday, the weekly Sensex expiry directed more auction activity towards BSE-listed counters, resulting in a sharp move in the Sensex, while the Nifty remained comparatively stable because similar participation was absent on the NSE,” said Chandan Taparia, Head of Derivatives & Technical Research at Motilal Oswal Financial Services.

 

Under the closing auction system, closing prices for stocks with futures and options contracts are determined through an auction conducted between 3:15 p.m. and 3:35 p.m.

 

The mechanism replaces the earlier method of using the volume-weighted average price of trades during the final 30 minutes of the session. Stocks without derivative contracts continue to follow the previous methodology.

 

India VIX, a gauge of market volatility, rose 0.8 per cent on Thursday to end at 12.15. The volatility indicator has risen 3.4 per cent so far this week.

 

Kamlesh Shroff, president of brokers’ forum ANMI, said the divergence was largely due to the learning curve associated with the new system.

 

“Limited participation and the need for greater awareness are two key reasons. As more market participants become familiar with the process and participate actively, price discovery should become more efficient. My sense is that by the end of August, the market would have completed a full weekly and monthly settlement cycle under CAS. By then, participation should broaden and the divergence is likely to narrow considerably,” Shroff said. 

 

Gold climbs to 7-week high 

Gold climbed to a seven-week high on Thursday, extending gains into a fourth session, as hopes surrounding the reopening of the Strait of Hormuz eased mounting fears around inflation and higher-for-longer interest rates. Spot gold was up 0.6 per cent at $4,271.33 per ounce by 0843 GMT. US gold futures rose 0.6 per cent to $4,330.20. Domestic gold prices rallied for the third straight session, soaring by ₹3,800 to a seven-week high of ₹1.53 lakh per 10 grams in New Delhi on Thursday. Silver also advanced ₹2,100 to ₹2,34,800 per kilogram from ₹2,32,700 per kg in the preceding session.

 

Oil rises as traders await Iran-Oman deal 

Oil rose in a choppy session as traders waited for a final Iran-Oman deal to partially reopen the Strait of Hormuz, with the US position still unclear. Brent climbed near $81 a barrel, after swinging between small gains and losses. Iran said a deal on proposed shipping lanes was in the final stages. Prices are still holding most of this week’s slump after Iran and the US indicated a resolution was close for shipping through the strait. But Iran has insisted that the US is not part of the agreement with Oman and hinted a normalisation of the strait will depend on the lifting of an American blockade on Iranian ports.