Indian shares slip on global woes; MSCI rejig spurs stock-specific volatility

Indian shares fell on Monday as higher crude prices and fears of U.S. rate hikes hurt investor appetite, with an MSCI index rejig combined with a new stock closing mechanism triggering sharp stock-specific swings.

Global markets were subdued as fresh fighting between the U.S. and Iran pushed oil prices higher, while borrowing costs in Germany and Japan hit fresh multi-year highs amid rising odds of a near-term U.S. rate hike.

India imports 85% of its crude needs and a sustained rise in prices could lead to interest rate hikes.

The country’s Nifty 50 fell 0.39% to 24,080.40 points and the BSE Sensex shed 0.4% to 76.957.27. The indexes fell 1.2% and 1.5% in August.

They were trading 0.52% and 0.44% lower ahead of the closing auction session.

India’s new mechanism to arrive on closing price in stocks with futures and options, coupled with an MSCI index rebalancing, “marked a major event for Indian markets as it is the first significant stress test” for the new system, said Ponmudi R, CEO of Enrich Money.

Shares of Billionaire Mukesh Ambani’s Reliance Industries, which saw its weighting being lowered, fell 0.8%. The oil-to-telecom conglomerate’s shares saw its indicative price dropping 1.6% briefly during the closing auction, giving up early gains.

“A large-cap stock like Reliance has significantly deeper liquidity, but the absolute size of outflows influenced its closing price too,” Ponmudi said.

Online delivery company Eternal closed flat, erasing the 3% fall ahead of the closing auction as its weighting on the index rose.

Mid-cap firms such as Laurus Labs, Adani Energy, SBI Card and Astral saw a larger impact, with analysts attributing it to a larger order sizes.

“What matters is not the absolute flow, but the flow relative to executable liquidity at the close. Less-liquid inclusion and deletion names are far more exposed to price dislocation,” said Hariselvan Radhakrishnan, founder and CEO of HST Wealth, implying that even modest index-fund orders can sharply move stocks.

The heaviest weighted stock on Indian benchmarks, HDFC Bank , fell 1.6%, reversing early gains, after the top private lender said its CEO Sashidhar Jagdishan decided to not seek reappointment at the end of his term in late October.

Eight of the 16 major sectors fell. Small-caps fell 0.7% while mid-caps gained 0.2%.