In what is perhaps the first major stress test for the recently implemented CAS, the quarterly MSCI rebalancing led to sharp price swings in the market. The exchange said the turnover was nearly 40 times the average since the new closing auction was introduced earlier this month, and some stocks like the Adani Group flagship stocks, Adani Enterprises and Adani Energy fell 7-10% in intra-day trade.
On the one hand, the National Stock Exchange of India Limited (NSE) recorded a turnover of Rs 39,718 crore (approximately $4.2 billion) in the Closing Auction Session (CAS) with a market share of 99.9% on the first-ever index rebalancing day after CAS went live in the Indian capital markets. On the other hand, the Adani Group stocks saw the deepest discounts compared to their all-day volume-weighted average price.
The Adani Group stocks have a combined market cap of nearly Rs 20 lakh crore, with the market cap of flagship Adani Enterprises near Rs 4.11 lakh crore. On the Nifty, Adani Enterprises and Adani Ports saw the biggest dent while among the 30 Sensex stocks, Adani Ports fell the most, closing down 4.11 per cent.
Not only did the Adani Group stocks see heightened volatility in closing trade, but also many of the Group stocks, like Adani Enterprise, plunged to an intra-day low of Rs 2,921 per share. This is close to the levels the stock was trading in May and the biggest 1-day decline since January this year.
Today also marks the completion of the first month of the Closing Auction Session. During this period, NSE recorded a cumulative CAS turnover of Rs 63,000 crore (approximately $6.6 billion), with a market share of 98.2%.
Interestingly, several Adani Group stocks saw significant interest from a host of brokerage houses. Motilal Oswal initiated coverage on Adani Enterprises with a ‘Buy’ rating and a target price of Rs 3,880. This implies nearly 35% upside from the closing price on August 31. According to the brokerage house, “Adani Enterprise’s expansion across verticals, rising contribution from incubated businesses, and robust demand outlook provide strong visibility on earnings growth and cash flow generation over the near and long-term.”
According to them, the company’s “market leadership, differentiated portfolio, superior scale, and proven ability to incubate and scale new businesses,” positions it to emerge as “one of the world’s leading integrated infrastructure platforms.”
Meanwhile, international brokerage house, Jefferies has a ‘Buy’ on Adani Ports and Special Economic Zone with a target of Rs 1,705.15 per share. They believe that the company “is best placed to
capture the opportunity, with Vizhinjam’s strategic location, deep-draft operating strengths and MSC partnership.”
The quarterly MSCI index rejig takes effect on September 1 and is a likely trigger for spurring higher interest in the auction. Traders pointed out that stock-specific flows may have triggered the sharp swings seen in the last 20 minutes of trade.
MSCI had added four Indian companies – Laurus Labs, Lenskart, Adani Energy Solutions and Groww – to its global standard index, replacing Balkrishna Industries, SBI Cards and Astral. The index rejig also cut down weight for Mukesh Ambani-led Reliance Industries and increased the weight for Eternal.
The sharp swings seen in the Adani Group stocks is seen as an impact of a sudden surge in volumes amid the closing auction system is being seen as an impact of the MSCI rebalancing taking effect. Interestingly, today also marks 1 month of the CAS implementation and first big stress test for the CAS. Most experts consider these sharp swings as teething troubles.