Indian stock markets showed significant divergence as Sensex closed lower while Nifty ended higher following sharp swings during the closing auction session (CAS). According to The Hindu, both indices traded in green before the CAS began at 3:20 pm, but Sensex lost around 20 points or 0.03% to close at 74,294.96 while Nifty 50 gained 76 points or 0.33% to end at 23,346.40. The volatility came as Sensex indicative price plunged nearly 1,000 points within seconds before making a sharp recovery, while Nifty managed to recover all losses during the CAS session. This divergence occurred amid ongoing concerns over the new CAS (Closing Auction Session) system introduced by SEBI in August, which continues to trigger massive market volatility and spook investors.
The 30-share Sensex declined 19.63 points, or 0.03%, to settle at 74,294.96 as IT stocks and Tata Group counters weighed heavily on market sentiment. According to The Hindu, Tata Consultancy Services tanked 4.33%, Titan 2.11%, Asian Paints 2%, Maruti 1.98%, Tech Mahindra 1.82% and Tata Steel 1.73% among the major losers. The majority of Tata Group stocks ended lower, including Tata Chemicals, which tanked 11.71% after advancing in the previous session. Tata Sons plunged into its most serious boardroom crisis since the ouster of Cyrus Mistry after directors voted to reappoint N Chandrasekaran as executive chairman for a further five-year term, prompting Tata Trusts to declare the resolution void and reopen a broader battle over the conglomerate's future. Adani Ports, Power Grid, HDFC Bank and Bharti Airtel were among the major winners during the session.
Brent crude, the global oil benchmark, declined 1.35% to $103.4 per barrel, providing some relief to markets amid ongoing concerns over inflation and India's import bill. As per The Hindu, softer crude prices and supportive Asian cues encouraged selective buying as markets closed mixed on Friday. In Asian markets, South Korea's Kospi, Japan's Nikkei 225, Shanghai's SSE Composite Index and Hong Kong's Hang Seng Index ended significantly higher, offering positive momentum to Indian equities. However, weakness in IT stocks and select Tata Group counters, along with liquidity being diverted towards several large IPOs, limited the broader recovery, according to Hariselvan Radhakrishnan, Founder & CEO of HST Wealth.
The equity options market share of proprietary traders fell to a 22-month low on NSE in August, underscoring the impact of central bank funding norms and CAS implementation. According to The Economic Times, proprietary traders' combined share of index and stock options fell by 62 basis points to 47.3% in August from July, marking their lowest level since November 2024. NSE's average daily premium turnover in equity options fell 15.7% month-on-month to ₹42,332 crore in August, while BSE's turnover declined by a larger 26% to ₹18,672.32 crore. Of the ₹7,879 crore decline in total equity options average daily turnover, proprietary traders accounted for slightly more than half of the reduction, while retail investors accounted for 35%. The funding challenges intensified as effective July 1, banks began requiring proprietary traders to provide 100% collateral for funding, up from 50%, in line with a RBI directive, effectively restricting access to bank guarantees that assure payments to trading counterparties.
Indian equities continue to face multiple challenges including elevated crude oil prices, geopolitical uncertainty, and evolving US monetary policy. According to Shweta Rajani, Associate Director at Anand Rathi Wealth Limited, the Nifty 50 and Sensex are trading 11-13% below their respective one-year highs, representing a meaningful correction from market peaks. At current levels, the Nifty 50 is trading 10-12% below its estimated fair value based on forward earnings, suggesting that valuations are not stretched and the market retains room for upside as earnings materialize. Historical data shows that whenever Nifty 50 has delivered negative returns over the last two years, the average return over the subsequent five years has been 21.9% per annum with an 80% probability of returns exceeding 11%.
For long-term investors, the current market correction and CAS volatility present both challenges and opportunities. Rajani recommends continuing SIPs as usual while those with lump sum investments can consider deploying funds gradually in 5-6 tranches over the next few weeks rather than trying to identify the exact market bottom. The expert emphasizes that SIPs should continue as periods of uncertainty and market weakness allow investors to accumulate more units at relatively attractive valuations. For portfolio allocation, she suggests maintaining around 50-55% allocation to large caps, 20-25% to mid caps, and the balance to small caps to provide a good balance between stability and growth participation across different market cycles. The recent moderation in oil prices and yields has provided near-term relief, but the sustainability of the market recovery will depend on further easing of global macro risks and a meaningful revival in foreign investor inflows.
