Why Nifty and Sensex diverged after launch of new auction mechanism

Stock exchanges introduced a new Closing Auction Session (CAS) mechanism for determining closing prices of cash market stocks with derivatives, replacing the Volume-Weighted Average Price (VWAP) system. This change, mandated by SEBI, led to an initial divergence in closing prices between the NSE Nifty and BSE Sensex due to separate order books, differing index compositions, and varying stock weightages. The article explains the CAS process, which aims to improve transparency, strengthen price discovery, and reduce manipulation, and notes the initial market volatility it caused.