MUMBAI: India’s equity benchmarks were expected to see sharp swings in the final minutes of trade yesterday as MSCI-index linked investors adjusted portfolios ahead of a rebalancing, providing the first major test of the new closing auction system.
The MSCI rejig takes effect today, and funds tracking the index typically adjust their portfolios a day earlier to ensure they are aligned with the benchmark.
With volumes in the new closing auction session still limited, the concentrated flows could trigger sharp price swings, traders said.
This MSCI rebalance is the first real litmus test for the CAS, said Arun Kejriwal, founder of Kejriwal Research and Investment Services.
“We could again see some chaos in individual stocks,” he added.
Introduced on Aug 3, the CAS 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.
The system replaced a methodology under which closing prices were based on the average price of trades executed during the final 30 minutes of continuous trading.
The MSCI rejig adds four Indian companies: Laurus Labs , Lenskart, Adani Energy Solutions and Groww. They will replace Balkrishna Industries, SBI Cards, and Astral.
The reshuffle will also reduce the weight for heavyweight Reliance Industries and increase the weight for Adani Enterprises.
“The larger names entering the MSCI basket are not major index components. Therefore, the volatility at the headline index level may not be very significant,” said Tejas Shah, head of trading, Equirus Securities. — Reuters
