Indian Bank Stocks Show Widest Exchange Price Gap in Decades

Shares of Indian banks fluctuated significantly on Thursday across the two major stock exchanges, raising doubts about the country's new closing auction system, Bloomberg reported. IndusInd Bank Ltd.'s shares ended at 1,002.9 rupees on the National Stock Exchange, while they settled at 970 rupees on the Bombay Stock Exchange, marking the largest 33-rupee gap between the two exchanges in over two decades.

Similar discrepancies were observed in stocks of AU Small Finance Bank, IDFC First Bank, and Federal Bank. The volatility resulted in the Bankex index on the BSE plummeting nearly 3.3% during Thursday's auction, before recovering slightly to close 1.7% lower. The index rebounded 1% on Friday. Thursday also coincided with the expiration of options contracts tied to the BSE Sensex and Bankex indexes, exacerbated by low liquidity in smaller bank stocks.

Analysts suggested that the dislocations and uncertainty surrounding the auction system, implemented on August 3, hinder price arbitrage and make it tough to reconcile the price gaps between the NSE and BSE. "I trade in multiple markets globally and haven't witnessed such a wide dislocation where the same stock closes with as much as a 3% gap on different exchanges," a Dubai-based hedge fund trader, Mayank Bansal, commented.

The Securities and Exchange Board of India has also expressed concerns, recently penalizing two entities, including a JPMorgan Chase unit, for alleged price manipulation during the auction.