Explained: Explained: Why Sensex is rising while Nifty is falling today

Sensex traded higher while Nifty fell sharply after Monday's closing auction distortion. Analysts said the divergence reflected a technical adjustment rather than changing fundamentals.

In Short

• Sensex rose 172 points, Nifty fell 164 points on Tuesday morning
• New Closing Auction Session (CAS) caused large buying in Nifty stocks Monday
• Nifty corrected sharply Tuesday as traders unwound auction-driven positions

Investors witnessed an unusual sight on Tuesday morning as the Sensex traded in the green while the Nifty 50 slipped sharply into the red.

At around 9:25 am, the Sensex was up 172 points at 78,811.17, while the Nifty was down 164 points at 24,609.75.

Normally, the two benchmark indices move in the same direction because they largely reflect the broader market. Tuesday's divergence, however, was not driven by any major economic event or earnings disappointment. Instead, it was largely the result of Monday's closing auction mechanism and the subsequent unwinding of that move.

WHY DID THIS HAPPEN?

The anomaly traces back to Monday, when Indian exchanges implemented the new Closing Auction Session (CAS) for stocks in the futures and options (F&O) segment.

The new mechanism is designed to improve price discovery at the close of trading. However, on its very first day, it resulted in an unusually large buying surge in several heavyweight Nifty stocks during the final minutes of trading.

According to Devarsh Vakil, Head of Prime Research at HDFC Securities, the Nifty jumped nearly 200 points during Monday's closing auction after around a dozen heavyweight constituents rallied by more than 1% in the closing minutes.

Since that move was driven largely by the auction process rather than fresh market fundamentals, traders expected part of the surge to reverse when trading resumed on Tuesday.

That is exactly what happened.

WHY WAS NIFTY HIT HARDER THAN SENSEX?

The Nifty was far more affected because the closing auction had disproportionately lifted several of its heavyweight constituents on Monday.

As traders unwound those positions on Tuesday morning, the Nifty corrected sharply.

The Sensex, which comprises only 30 stocks compared with the Nifty's 50, was relatively insulated as gains in stocks such as Asian Paints, Tata Steel, Kotak Mahindra Bank, Trent and Bajaj Finance helped offset weakness in IT and FMCG shares.

EXPERTS SAY THIS IS A ONE-OFF ABERRATION

Dr. VK Vijayakumar, Chief Investment Strategist at Geojit Investments Limited, said investors should not read too much into Monday's sharp move.

"The 390-point spurt in the Nifty yesterday caused primarily by the new Closing Auction Session (CAS) for determining the closing prices of stocks in the F&O segment is expected to normalise today. The sharp spike in Nifty vis-a-vis Sensex was an aberration caused by the new CAS, and therefore, investors need not attach much importance to this one-day aberration," he said.

He added that the broader market remains fundamentally strong, supported by improving economic indicators and sustained foreign institutional investor (FII) buying.

THE REAL TEST IS YET TO COME

Kranthi Bathini, Equity Strategist at WealthMills Securities, said it is still too early to judge whether the new closing auction mechanism has been successful.

According to him, the first trading session under the new framework naturally witnessed pricing distortions, something that is common whenever a new market mechanism is introduced.

He noted that participation and liquidity need to improve before efficient price discovery can take place. Unlike mature markets such as the US, India's closing auction ecosystem is still evolving, and traders are likely to closely monitor the final 15-20 minutes of trade, especially on weekly expiry days, for signs of further volatility.

For now, Tuesday's sharp divergence between the Sensex and Nifty appears to be more of a technical adjustment than a reflection of changing market fundamentals.

(Disclaimer: The views, opinions, recommendations, and suggestions expressed by experts/brokerages in this article are their own and do not reflect the views of the India Today Group. It is advisable to consult a qualified broker or financial advisor before making any actual investment or trading choices.)

- Ends