Closing auction mechanism: Sensex-Nifty divergence continues, experts expect gap to narrow

The auction mechanism, which was first enforced on Monday, has so far led to a more-than-usual divergence in the closing levels of both the benchmark indices due to thin volumes and differences between the two exchanges on the settlement for individual stock prices.

“So far, CAS proved to be challenging due to limited market participation, causing a divergence between Nifty and Sensex performances. However, as liquidity deepens and broader market participant adoption grows, we expect this price disparity to normalise,” said Vipin Kumar, assistant vice president of equity research at Globe Capital Market.

New mechanism, market sentiment

Traders have thus taken time to adjust to the new mechanism compared to the price visibility they had under the earlier system when the closing price was based on the average of the last 30 minutes of trading in a session.

Heavyweights Reliance Industries, State Bank of India and ICICI Bank, which gained 2–3%, led the Sensex’s rally on Thursday. On the sectoral front, gains were led by banking and financial services players, with public-sector banks like Union Bank, SBI, and Indian Bank outperforming.

The market sentiment was also somewhat buoyed by the Reserve Bank of India’s (RBI) monetary policy decision on Wednesday, which many deemed to be more dovish than expected. The central bank hinted at holding interest rates stable for a longer period despite acknowledging the uncertain macroeconomic and inflation outlook.

“We think the policy tone was dovish overall, in fact more than in the June meeting. Yet, we think there was an interesting difference between inflation forecasts and the commentary around it. The RBI may have lowered its inflation estimate for FY27 by 0.1 percentage points to 5%, but it still has inflation running at over 5% for 3 successive quarters,” HSBC noted in a report after the RBI’s policy announcement.

The market also took comfort from a relatively stable situation in West Asia, with crude oil prices remaining around the $80-a-barrel mark. “Markets drew support from the moderation in crude oil prices, aided by intensified diplomatic efforts to restore regional stability and normalize shipping activity through the Strait of Hormuz,” noted Vinod Nair, head of research at Geojit Investments.

Market participants, however, remained broadly positive on the market despite the slight uncertainty brought in by the new mechanism. “After rallying nearly 1,150 points from 23,606 to around 24,770 in just seven sessions, the Nifty 50 has spent the last three sessions consolidating at higher levels. Such time-wise consolidation after a strong advance is constructive,” according to Bajaj Broking.