Orvian Tech will join a major index. Passive funds need to buy 3 crore shares, and the stock trades 20 lakh shares a day. How do you think about the price pressure and the timing of the trade?

The passive demand equals about 15 days of normal volume, so it moves the price before the effective date and the edge is in timing, not in the fact of inclusion. A rough impact rule puts the pressure near 8%. A fund can buy about 40 lakh shares over ten days at 20% of volume and sell them into the effective-date close, where demand is deepest. The risk is that everyone else runs the same trade.

Convert the order into days of volume first, because that is the unit a trading desk thinks in. Three crore shares against 20 lakh a day is 15 days of normal trading, and index funds want all of it on a single closing price. It is like a wedding caterer who needs fifteen days of a village market's rice on one morning: the rice exists, but not at yesterday's price, and every trader in the market knows the caterer is coming.

Traders use a rough rule: the price impact of an order is about the stock's daily volatility times the square root of the order in days of volume. Square-root impactA widely used rule of thumb that price impact rises with the square root of order size relative to daily volume, so doubling an order raises impact by about 1.4 times, not 2 times. is an estimate, not a law, but it gives the right order of magnitude. For Orvian, 2% times the square root of 15 is about 7.7%, so a move of several per cent between the announcement and the effective date is the working assumption. Our own 40 lakh shares, two days of volume, cost about 2.8% to buy on the same rule.

Buy early, before the pressure is priced, at a pace the market can absorb: 20% of 20 lakh for ten days is 40 lakh shares, about Rs 200 crore, or 13.3% of what the passive funds need. Sell into the effective-date close, because that auction is the one moment when a buyer for fifteen days of volume is guaranteed to be there. Selling a day early gives up the auction; holding past the close means owning the stock once the one-off buyer has gone, and prices often drift back after large inclusions.

Close with the risk. Index inclusion is public, so event funds, platforms and quick traders all see it. If the stock jumps most of the expected amount on announcement day, the trade has already been done by others and the remaining edge may not cover costs. The judgement is to measure the move already made against the rough impact estimate, and to size down or pass when little is left.