It was a flattish day again—no significant losses, but no major gains either. So, for the fourth day in a row, we remain stuck in a short-range market. In today’s weekly discussion, we’ll focus on a new closing bell phenomenon that SEBI is redefining. We’ll explore this in the second half of the video, as it’s going to change how we determine closing prices in the market, which will impact a lot of passive funds.

Where is the market headed?

Market Overview

Let’s now take a look at the market. For the fourth or fifth day in a row, we are stuck in an inside bar pattern. An inside bar occurs when your daily bars are within the range of a larger bar, in this case, last Thursday’s bar. Nearly a week has passed since then, and we are still consolidating after the recent surge. We are now challenging the breakout level of around 24,500. A dip below that could take us towards the 24,200 mark. But I believe this could be a coiling-up pattern for a potential move up, unless we break down from this level. I’m still hopeful for an upward move, but of course, I could be wrong.

Nifty Next 50

The Nifty ended the day down 0.38%, and the Nifty Junior dropped 0.29%. After running up for nearly 15 sessions, there was some give-back today with a 0.29% drop. Nothing major to worry about.

Nifty Mid and Small Cap

Mid-caps fell by about half a percent after several sessions of upward movement, indicating some pressure at this level. Small caps, on the other hand, experienced the biggest drop of 0.93%, moving down from the resistance line. However, I don’t think we should jump to conclusions and declare that the trend is reversing. Let’s wait for a few more days to get a clearer picture.

Nifty Bank Overview

The Bank Nifty also remains indecisive, spending four days within the range of Friday’s move, which itself was inside Thursday’s range. We’ve essentially spent the whole week within Thursday’s bar, with a minor drop of 0.33%. Overall, the market has been quite dull and sideways.

Advanced Declined Ratio Trends

Advances were lower than declines, suggesting a slightly heavier hand on the downside. After four or five days of stagnation, some of the weaker hands may start to panic and exit, unless we see a strong rebound. I feel this sideways market may eventually fall under its own weight unless there’s a decisive push in the other direction.

Nifty Heatmap

Turning to the heatmap, it was a mixed bag, but overall, the market leaned towards the red. Reliance was down 1.2%, Coal India dropped 1.8%, and ONGC was down 1.9%. Kotak Bank, State Bank of India, SBI Life, and other heavyweights also saw losses. In the FMCG sector, there were significant losses in stocks like Hindustan Unilever, ITC, Nestle, and Tata Consumers. Other stocks like NTPC, Tata Motors, Titan, Asian Paints, L&T, and Trent also posted losses. The gains were few and far between, with Bharti Airtel seeing some positive movement, as did Tech Mahindra with a 1.5% rise. TCS and Infosys had marginal gains, but nothing significant—particularly when you compare them to the previous night’s performance on the Nasdaq. Adani stocks, however, saw a collective upward movement, likely spurred by news about the replacement of the Fed secretary and changes in the investigation surrounding them.

Lodha was up 1.79%, and beyond that, we saw minor gains in Vedanta, Varun Beverages, and L&T Infotech. However, some of the recently active stocks like Zomato, Mother Sun, and ABB took a step back today. It was one of those days where the bulls held on, but now they’re at a critical point—just one or two more dull days, and they might give up on the rally.

Sectoral Overview

Sector-wise, IT stocks moved up by 0.8%, and metals gained 0.3%. However, most other sectors were down. The FMCG sector is becoming a growing concern, having fallen 1.1% today and 2.5% over the last week. It has lost 14.3% in the past three months and only gained 4% over the past year. Many FMCG stocks, such as Dabur and Hindustan Unilever, have essentially made no progress over the last few years. Other sectors that lost ground included public sector enterprises, autos, PSU banks, and energy, with energy seeing significant losses of 12.9% over the past three months.

Sectors of the Day

Nifty IT Index

While there weren’t any major moves today, it’s clear that most sectors are trending down. However, IT stocks are the exception, up 0.7%, and continuing to make new highs. Whenever a stock, sector, or index reaches new highs, it’s a clear sign that there’s no resistance left, especially if it’s an all-time high. If the momentum continues, IT stocks have the least resistance to move higher. And given that IT stocks are leading all sectors in making new highs, they are likely to outperform the broader market. Some of the top performers in the IT space today included CoForge, Tech Mahindra, Persistent, LTI, Mindtree, and L&T Tech.

Stock of the Day

Chalet Hotels

In today’s stock spotlight, Chalet Hotels surged 9.7%. This stock has been a rising star, growing from ₹100 at the Covid bottom in 2020 to ₹1,000 now. After a year of consolidation, it seems to be breaking out on the higher side. You might want to watch for potential setups in Chalet Hotels.

Story of the Day: is SEBI redefining India’s closing bell?

Let’s first understand how closing prices are typically determined. The last transaction that happens at 3:30 PM is not the closing price. The closing price is actually a derived price, not the last traded price. The way it’s calculated is by taking a weighted average of prices during the last 30 minutes of market trading, from 3:00 to 3:30 PM. The weighted average gives more importance to the prices with higher trade volumes, which helps determine the closing price. For example, if there are three transactions in ABC Ltd. during this period—one at ₹100 with 200 volume, another at ₹101 with 300 volume, and another at ₹110 with 500 volume—the weighted average closing price would be ₹105.3, rather than just a simple average or median.

This system has worked reasonably well so far, but there’s always the potential for manipulation. A lot of passive funds depend on closing prices to execute trades. For instance, an ETF tracking an index will use the closing price of the stocks in the index to calculate its end-of-day NAV. There could be situations where traders manipulate the closing price, particularly in the last minute, to benefit from options contracts or to misalign index values. This could create significant tracking errors, which can multiply over time, especially since passive funds now manage huge sums of money (₹11 lakh crore).

There have been cases globally where manipulation of closing prices has had serious consequences. In 2009, Hong Kong faced a major manipulation of its closing prices, which led to a 10% artificial price dip. As a result, Hong Kong introduced a closing auction system in 2016, which capped price movements to ±5% and implemented it gradually for the most liquid stocks. SEBI is now considering a similar system. The idea is that after the regular market closes, there will be a separate session (5–10 minutes long) where buyers and sellers can match their bids and offers. This session would determine the closing price of the day for all stocks, aligning it with market sentiment and reducing price distortions.

There will still be some potential for manipulation in the closing session, but it will be more transparent and less likely to cause sudden, erratic price movements. This change may also help brokers who need to close positions during the regular session but face extreme volatility.