India's Nifty 50 index saw an unusual 0.8% surge, equivalent to about 200 points, in the last two minutes of trading on Monday, closing up 1.6% at 24,774.30. This late rally, which began around 3:28 PM, caught market participants off guard and caused an unprecedented divergence with the Sensex, which ended the day up 0.7% at 78,639.03. This nearly 0.9 percentage point difference in gains between the two major indices is highly uncommon, as their percentage movements typically vary by no more than 5-10 basis points.
The unexpected spike is being attributed to the debut of a new closing auction system (CAS) implemented by exchanges for stocks in the futures and options (F&O) segment. This new mechanism replaced the previous system, which calculated closing prices based on the volume-weighted average price (VWAP) of trades during the last 30 minutes of trading. Under the CAS, buy and sell orders are matched in a single-price auction after regular trading hours, aiming for more robust closing prices and reduced susceptibility to last-minute large orders.
Several factors contributed to the Nifty's sharper rise compared to the Sensex. The National Stock Exchange (NSE), where the Nifty is traded, has significantly greater cash-market liquidity and attracts a larger share of institutional orders, including those from mutual funds (MFs) deploying Systematic Investment Plan (SIP) inflows. During the auction, a mismatch between buy and sell orders, potentially driven by these large institutional purchase orders in heavily weighted Nifty stocks, pushed prices up. For instance, around 10-12 large-cap Nifty stocks, including Grasim and Axis Bank, closed over 1% above their pre-auction levels, mechanically lifting the Nifty's closing level.
Arbitrageurs and liquidity providers may have stayed on the sidelines during this first session of the new mechanism, leading to a shortage of sell-side liquidity. Proprietary trading desks reportedly placed sell orders at substantially higher prices, which long-only institutional investors needing to complete purchases had to match. This concentrated auction activity in high-weighted NSE stocks had a more pronounced impact on the Nifty. Experts noted that while there was confusion and unexpected volatility, it was likely due to the new system's structure rather than market manipulation, and implied that market prices should normalize when trading resumes.
The total turnover during the closing auction on the NSE was ₹1,276.2 crore, significantly higher than BSE's ₹10.8 crore. ICICI Bank, HDFC Bank, and Reliance Industries were among the most actively traded stocks during the NSE auction. Analysts highlighted that the implications would have been more severe if this had occurred on an expiry day for Nifty derivatives, which typically happen on Tuesdays, as it would have directly affected settlement values and potentially led to significant gains or losses for participants. The new system is intended to improve price discovery and make closing prices more reflective of actual demand and supply.
