The first index rebalancing conducted by the global index provider MSCI after the introduction of the Closed Auction Session (CAS) caused a significant surge in trading volumes on the National Stock Exchange (NSE). In the special CAS window, turnover reached 39,718 crore rupees, accounting for nearly 22 percent of the total cash market volume.
The total trading volume in the cash segment on Monday was 1.81 trillion rupees. This jump sharply contrasts with the typical share of activity in CAS, which averaged about 1 percent of the total NSE cash market volume in August. For instance, on Friday, the trading volume in CAS on NSE was 945 crore rupees against a total cash market volume of 1.1 trillion rupees.
A similar trend was observed on the BSE, where the trading volume in CAS on Monday increased to 59.5 crore rupees compared to the range of 9–22 crore rupees recorded for most of August (excluding expiry dates when volumes were higher). The increase in CAS volumes was driven by flows resulting from the rebalancing.
CAS was introduced on August 3 as a separate 20-minute window to determine the closing price of a stock, aiming to reduce tracking errors and assist passive funds in calculating NAV. The MSCI rebalancing on Monday is part of periodic index reviews that prompt global passive funds to adjust their investments in India, often causing sharp, short-term spikes in end-of-day trading volumes.
NSE noted that 'the turnover in CAS recorded on the rebalancing day demonstrates that index funds and passive investors diligently executed their rebalancing trades through the Closed Auction Session, reflecting their confidence in CAS as a mechanism for fair and transparent closing price determination.'
Despite the new mechanism absorbing the significant increase in turnover on Monday, dozens of stocks showed sharp fluctuations in the CAS window, hitting their 3 percent limits. Previously, market participants had expressed concerns regarding low liquidity and sharp price movements in CAS.
Market Participant Testimonials
Kamlesh Shroff, national president of the Association of NSE India Members (ANMI), a brokerage association, stated that 'the first MSCI rebalancing through CAS India was successful, but the price movement was quite volatile. There was a significant price movement: 31 stocks reached the upper limit of 3 percent, and 10 reached the lower one.'
Adani Group companies also experienced sharp movement in the CAS window due to the planned MSCI rebalancing. Adani Enterprises shares closed Monday 9.8 percent lower, with the drop in CAS being steeper. All other group stocks also closed in the red. Overall, Adani Group companies lost 1.37 trillion rupees in market value on Monday.
Shroff added: 'It is interesting that Adani Enterprises, Adani Energy Solutions, and Adani Ports closed at the lower limit despite the expected inflow of funds. Key MSCI names also accounted for a substantial portion of their daily volumes concentrated in CAS. Overall, liquidity was available, but the concentration of passive flows in the short auction window led to significant price distortions.'