MSCI rejig drives volumes in Indian stocks amid closing auction swings

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.