Summary of this article
MSCI reshuffle could cause volatile swings in stocks during August 31’s closing auction
CAS faces its first major test after recent expiry-day swings
Fed rate hike bets, rising crude prices and HDFC Bank remain key market cues
Indian stocks could see a volatile session towards the end of August 31’s session as global funds rebalance portfolios ahead of MSCI’s latest index changes, putting the newly-introduced Closing Auction Session (CAS) to its first major test.
MSCI’s changes will take effect from September 1. Index-tracking funds typically adjust their portfolios a day before the changes become effective, which could concentrate buying and selling in the final minutes of Monday’s trade.
The CAS was introduced on August 3. It runs for about 20 minutes and determines the official closing price through an auction that matches buy and sell orders. It replaced the earlier method of calculating the closing price using trades executed during the final 30 minutes of regular trading.
The MSCI reshuffle will add Laurus Labs, Lenskart, Adani Energy Solutions and Groww to its Global Standard Index. Balkrishna Industries, SBI Cards and Astral will be removed. Reliance Industries will see its weight reduced, while Adani Enterprises will get a higher weight.
The impact is likely to be bigger on individual stocks than on the broader market. Since the newly added stocks are not major index heavyweights, the changes may have a limited impact on the Nifty and Sensex.
Still, the size and concentration of passive fund flows could make the closing auction volatile.
The CAS has already come under scrutiny after volatile swings during August 27’s (Thursday) monthly derivatives expiry. The Sensex’s indicative closing level showed a 3.3 per cent decline at one point during the auction before the index recovered to end the day 0.7 per cent lower.
August 31, however, does not coincide with a derivatives expiry. That could limit the broader market impact even if individual stocks see sharp swings.
Meanwhile, US Fed Chair Kevin Warsh’s Jackson Hole speech has raised expectations of a September rate hike. The odds of a 25 basis-point hike rose to about 60.40 per cent from 35 per cent before his speech, according to the CME FedWatch Tool.
For India, higher US interest rates could keep the dollar and Treasury yields firm, putting pressure on foreign portfolio flows into Indian equities.
Geopolitical risks are another concern. Brent crude rose about 2.25 per cent to trade above $90 a barrel after US forces struck two Iranian launchers.
HDFC Bank will also remain in focus after CEO Sashidhar Jagdishan said he would not seek reappointment when his term ends in October. The bank is considering Deputy Managing Director Kaizad Bharucha among the candidates for the top job, Reuters reported.
