Nifty’s closing surge blamed on supply imbalance, not auction flaws

The stark divergence between the Nifty and Sensex on Monday caught many traders off guard, as the former rallied while the latter slipped. Shunmugam attributes this to the mechanics of the new system, which determines prices based solely on the available pool of participants at the close. On the NSE, a surge of buyers met limited supply, forcing prices upward, whereas the BSE experienced the inverse pressure of heavy selling against thin demand. This disparity further highlights the shifting liquidity landscape between the two exchanges, with the NSE currently maintaining stronger cash market depth.

The new Closing Auction Session replaces the previous Volume-Weighted Average Price (VWAP) method, aiming to provide a more accurate benchmark for passive investors, such as index funds, who concentrate their trades at the end of the day. While global markets like New York and London have long utilized similar auction protocols, the Indian market is still acclimatizing to the transition. Shunmugam suggests that while the mechanism is superior to the legacy VWAP approach, stability could be improved by refining reference price calculations and restricting corporate disclosures during the auction window. He maintains that the initial volatility is a temporary teething issue, with market pricing expected to normalize as participants adjust to the new, more standardized closing procedure.