Nifty Volatility: Index Briefly Falls 2.2% During F&O Expiry; Bank Nifty Drops 1,100 Points

The Nifty 50 witnessed sharp volatility during the closing auction session on September 29, with the indicative index level briefly falling as much as 2.2% before recovering much of the decline.

The sudden move came on the monthly Futures and Options (F&O) expiry and renewed attention on the Closing Auction Session (CAS), a mechanism that has been associated with sharp price swings around derivatives expiry.

During the volatile period, the Nifty touched an indicative low of around 22,267, while the Bank Nifty briefly moved below 53,300.

The benchmark indices subsequently recovered most of the intraday decline. At the close, the Nifty 50 fell 0.28% to 22,716.20, while the BSE Sensex declined 0.33% to 72,529.07. The Bank Nifty ended 0.4% lower at 54,259.95, according to the figures in the source report.

Why did Nifty see such sharp swings?

The volatility occurred during the closing auction on a monthly derivatives-expiry day.

The Closing Auction Session (CAS) was introduced on August 3 for stocks with futures and options contracts. Under the mechanism, a short auction at the end of the regular trading session is used to help determine closing prices.

The process has attracted attention because of sharp movements in derivatives prices around expiry. The Securities and Exchange Board of India (SEBI) has subsequently proposed changes to the way expiry-day derivative settlement prices are determined.

The sharp movement on September 29 once again put the spotlight on the mechanism.

SEBI proposes changes to expiry-day settlement

SEBI’s consultation paper has outlined two possible approaches for determining derivative settlement prices.

Under the first proposal, the settlement price would incorporate trades from the final 30 minutes of regular trading along with the 10-minute closing auction.

The second proposal would temporarily return to the earlier methodology, under which the settlement price would be based only on the final 30 minutes of regular trading. Under this approach, the closing auction would not be used for derivatives settlement for at least one year.

The regulator has also proposed additional changes aimed at reducing volatility during the closing process.

These include restrictions on cancelling orders placed more than 1% above or below the reference price, reducing the post-auction derivatives trading window from 10 minutes to five minutes, and discontinuing publication of an estimated index closing level during the auction.

Brokerages watch the impact of CAS changes

Brokerages have also commented on the potential impact of SEBI’s proposals.

Jefferies has suggested that a return to volume-weighted average price (VWAP)-based settlement, combined with tighter rules around order cancellations, could help reduce sharp movements near expiry.

IIFL Capital said a return to VWAP-based settlement could potentially bring back some derivatives activity that shifted away after CAS was introduced. However, it noted that the extent of any recovery would be difficult to quantify without detailed trader-level data.

The consultation process remains ongoing, with October 3 cited as the deadline for responses in the source report.

Nifty’s September decline adds to market pressure

The expiry-day volatility comes against a weaker backdrop for Indian equities.

The Nifty 50 was reported to be down approximately 5.7% in September through September 29. Over the same period, MSCI’s broad Asia-Pacific index excluding Japan was down around 1%, according to the source material.

Analysts have pointed to several factors behind India’s relative weakness, including elevated crude oil prices and rising US Treasury yields.

India’s significant dependence on imported crude makes higher oil prices particularly relevant for the domestic economy. More expensive oil can increase the import bill and create pressure on inflation, while potentially affecting economic growth and corporate margins.

Nitesh Arora, managing partner at Equirus Family Office, said higher US Treasury yields have increased the risk-free return available to global investors, making the relative premium offered by Indian equities less attractive and potentially contributing to foreign portfolio outflows.

Nifty 22,600 becomes key technical level

Rupak De, senior technical analyst at LKP Securities, identified 22,600 as an important support level for the Nifty.

According to De, the index moved toward its 200-week moving average, which he placed at around 22,600. He said a sustained break below that level could increase selling pressure, while holding above it could support a recovery toward higher levels.

He identified 22,800 as an immediate resistance level.

These are technical-analysis levels rather than guaranteed market outcomes.

Bank Nifty remains under pressure

Bank Nifty also experienced significant volatility during the session.

Vatsal Bhuva, technical analyst at LKP Securities, said the index formed a hammer-like pattern after the sharp decline and that its RSI had moved into oversold territory, which he interpreted as a possibility for a short-term recovery.

At the same time, Bhuva noted that Bank Nifty remained below its 20-day moving average and had broken the 55,547 support level.

He identified 55,200–55,500 as a potential recovery zone, with support around 54,000, followed by 53,844.

Analysts see weak short-term structure

Shrikant Chouhan, head of equity research at Kotak Securities, said the market found support around the 22,570 Nifty level, with the index recovering some of its intraday losses.

He noted that the daily chart formed a Doji pattern, while the intraday structure remained weak.

For traders, Chouhan identified 22,600 as an important support area. According to his analysis, a sustained move above that zone could open the possibility of a recovery toward 22,850–23,000.

On the other hand, he said a break below 22,600 could increase selling pressure toward 22,500–22,400.

These levels represent the analyst’s technical assessment and can change as market conditions evolve.

What the September 29 volatility means for investors

The sharp movement during the closing auction highlights the importance of understanding how F&O settlement prices and the CAS mechanism work, particularly for traders holding positions into expiry.

The episode also comes as SEBI considers changes to the settlement methodology and other aspects of the closing auction process.

For investors and traders, the key developments to watch are the regulator’s final decision on the proposed framework, changes in expiry-day settlement calculations and the behaviour of benchmark indices around the closing session.

Meanwhile, the broader market remains sensitive to crude oil prices, global bond yields, foreign portfolio flows and domestic economic conditions.

The September 29 session therefore combined two separate sources of risk: expiry-related market mechanics and a broader period of weakness in Indian equities.