Nifty traded at around 22,684 before 3:19:59 when the CAS session began. Immediately, the benchmark index’s indicative price crashed to 22,249 at 3:20:01. This implies a sharp drop of 435 points in just two seconds. The indicative then sharply spiked, wiping off all the losses recorded during this brief plunge and closing above the pre-CAS level at 22,716.
Typically, markets see heightened volatility on monthly expiry days. However, CAS has led to such wild swings in the benchmark indices at the fag end of the sessions. Overall, Nifty lost 64 points or 0.28% on Tuesday, with technical charts remaining weak for the benchmark index.
Sensex comparatively saw a stable CAS session, with the benchmark index overall closing 243 points lower at 72,529. The Indian stock market has extended losses after yesterday’s sharp crash where Sensex and Nifty plunged 1.6%.
Stock exchanges introduced the new Closing Auction Session (CAS) in August, changing the way closing prices are calculated for stocks included in the futures and options (F&O) segment. During the 20-minute auction window, buy and sell orders for eligible stocks are collected and matched at a single equilibrium price. This mechanism is aimed at improving price discovery and reducing the impact of last-minute trades on closing prices.
While the intentions were noble, the CAS system has been leading to massive volatility especially on expiry days. Market regulator Sebi has however remained firm that CAS is here to stay. Earlier this month, it proposed two options for determining expiry-day settlement prices for index and stock derivatives. The consultation paper also proposed changes to the timing of the continuous trading session (CTS), CAS and derivatives trading, along with additional measures to improve the new session.
What lies ahead for Dalal Street?
While Nifty’s sharp volatility was noteworthy, the market sharply recovered from day’s lows. Sensex and Nifty had dropped around 1% earlier in the day, but recovered most of the losses by the end of the session to close up to 0.3% lower. However, they are continuing to record losses amid multiple headwinds.Domestic equities continue to face correction-led headwinds amid volatile crude prices, US Treasury yields hovering near two-decade highs, and persistent FII outflows exerting pressure on the rupee, said Vinod Nair, Head of Research at Geojit Investments. Adding to the pressure, the unprecedented pace of IPO fundraising is absorbing incremental liquidity, he added.
Investor risk appetite remains subdued against a hawkish global backdrop amid rising odds of additional rate hikes later in the year,” the analyst said. While geopolitical tensions will continue to shape near-term sentiment, market focus is gradually shifting towards Q2 earnings, with expectations already tempered versus Q1, he added.
A meaningful de-escalation of the US-Iran conflict could trigger a sharp relief rally driven by improved risk sentiment, but until then, investors are likely to remain selective, favouring fundamentals and earnings visibility over broad-based market exposure, according to Nair.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
Add as a Reliable and Trusted News Source Add Now!
(You can now subscribe to our ETMarkets WhatsApp channel)