The MSCI India Standard Index rebalancing on September 1 is set to test SEBI's new Closing Auction Session (CAS) mechanism for the first time, creating significant liquidity concerns. According to Moneycontrol, the rebalancing is expected to generate around $5 billion of trading turnover by global passive funds, with roughly $4 billion potentially passing through the CAS window. This would be almost 30 times the roughly $125 million of daily turnover the auction has typically handled so far. As per Motilal Oswal's Chandan Taparia, the concern is that liquidity has been missing from the market since CAS was introduced, with only around small portion of trading volume happening in the last hour.
The Indian stock market benchmark indices, Sensex and Nifty 50, are expected to open flat to negative on Tuesday, 1 September, amid weak global cues. According to reports from LiveMint, the Gift Nifty was trading around 24,197.5, at a discount of nearly 54 points to the previous close of Nifty futures, signalling a cautious start for the domestic market. The Sensex and Nifty 50 ended lower in the previous trading session, with the benchmark Nifty 50 closing below the 24,100 level.
Laurus Labs is expected to be the biggest beneficiary with estimated inflows of $598 million following its inclusion in the MSCI India Standard Index, with the stock potentially seeing demand equivalent to around 31 million shares, or roughly 14 times its average daily trading volume. Lenskart Solutions is likely to command a weight of 0.3%, attracting an estimated $352 million in passive inflows, with expected buying equivalent to about 57 million shares, or around 13 times its average trading volume. Among existing index constituents, Eternal is expected to see the biggest increase in weight, rising from 0.6% to 1.1%, while Adani Enterprises could see its weight rise from 0.4% to 0.6%, potentially attracting around $202 million.
On the downside, Reliance Industries could see its MSCI weight fall from 6.1% to 5.6%, resulting in estimated passive outflows of around $523 million. Other stocks expected to see lower weights include Jio Financial Services with estimated outflows of $61 million, Indian Hotels at $32 million, Aditya Birla Capital at $21 million and Colgate-Palmolive India at $16 million. Balkrishna Industries, SBI Cards and Payment Services, and Astral are being removed from the index, with Balkrishna Industries potentially seeing estimated outflows of $169 million, while SBI Cards and Astral could see $143 million and $138 million respectively.
According to Chandan Taparia, Head Derivatives & Technicals, Wealth Management, Motilal Oswal Financial Services Ltd, the maximum call OI is at 24,200 then 24,400 strike, while maximum put OI is at 24,000 then 24,050 strike. As reported by LiveMint, call writing is seen at 24200 then 24200 strike while Put writing is seen at 24000 then 24050 strike. For Nifty 50, if it crosses and holds above 24,100 zones, upside could be seen towards 24,250, then 24,350 zones, while support can be seen at 23,950, then 23850 zones. The liquidity concern is likely to be more pronounced in stocks with relatively smaller order books, while larger index constituents such as Reliance Industries should be better placed to absorb sizeable institutional orders.
