Capital market stocks rise on CAS fix hopes, index closes 1% higher

Capital market stocks gained Friday after the market regulator's latest circular on the Closing Auction Session (CAS) mechanism raised expectations of changes to the framework. The Nifty Capital Markets index closed 1% higher at 5,420, against the previous close of 5,357.20.

Among the biggest gainers, Angel One jumped 4.8%, MCX gained 3.3%, BSE rose 3.1%, Motilal Oswal Financial Services advanced 2.4%, while Billionbrains Garage Ventures (Groww) gained 2.2%. "The weeks of trader pushback against CAS-linked settlement pricing have finally prompted Sebi to respond, and that is what is driving capital market stocks," said Manish Bhandari, CEO and portfolio manager at Vallum Capital.

"Since the August 3 rollout, expiry-day auctions have produced erratic settlement prints, with derivative securities settling off the CAS close. This has caused option premiums to swing 400-500%. The August 13 episode, where thin auction-window liquidity allowed a few large orders to move prices sharply, triggered Sebi's interim order against two entities and crystallised industry concerns," he said.

Market participants expect Sebi's consultation paper, due within a week, to reduce reliance on the single CAS print. "A credible fix would restore trader and investor confidence by delinking options settlement from the CAS-determined closing. This will also remove the overhang of reduced trading volumes for capital market companies," Bhandari said.

The introduction of CAS had created volatility around expiry-day settlement, prompting some traders and liquidity providers to scale back participation and contributing to a decline in derivatives volumes during August.

"Investors expect engagement between regulator and market participants for addressing concerns. Optimism is also driven by the view that the slowdown in volumes may prove temporary rather than structural," said Vinod Nair, reasearch head, Geojit Investments.