With the domestic stock markets continuing to trade on a volatile note, the fear factor on Dalal Street is creeping up. India VIX, a measure of market’s expectation of volatility over the near-term, jumped 5% on Wednesday after hitting its lowest level this calendar year on Tuesday. The volatility index, computed by NSE based on the order book of Nifty Options, stood at 12.50, up 5.14% compared to 11.89 in the previous session. The day to day rise in the fear factor gauge on April 25 is the highest in over a month.
India VIX is calculated by using the best bid-ask quotes of near and next-month Nifty options contracts which are traded on the F&O segment of NSE. India VIX indicates the investor’s perception of the market‟s volatility in the near term i.e. it depicts the expected market volatility over the next 30 calendar days. Higher the India VIX values, higher the expected volatility and vice-versa.
The NSE Nifty 50 is back at its year’s starting level, with the index at 10570.55 while Nifty futures is at 10568.60. “Technically, the dynamics remain more or less unchanged & largely on a predefined trajectory. It seems to be driven on the minute scale by statistical levels. On the higher side, Nifty 50 levels around 10640-10740 now stand as a potential barrier, while the levels on the lower side around 10450-10350 assume significance,” said GEPL Equities.
The India VIX had dropped to 11.58 on December 22, 2017, but thereafter rose to 14 levels by mid-January in 2018. In early February, the India VIX hit 24 level but has consistently dropped since then.
Market experts say that recent events like the US treasury yields hitting multi-year highs are affecting Indian market sentiment. “In keeping with the recent trend, markets continued to trade on a volatile note and swung between the positive and negative zone, through the day. Recent firmness in crude prices, rising bond yields in the US and the expiry of derivatives contracts this week, all contributed to the volatility in the markets,” says Abhijeet Dey, senior fund manager-equities, BNP Paribas Mutual Fund.
Asian stocks on Wednesday tumbled across the board while the US stocks witnessed selling pressure after the 10-year US Treasury yield briefly touched the psychologically important 3% level for the first time in four years.
Some technical analysts say that VIX rising by 5% may not always indicate bearishness. “Although India VIX is often called the fear gauge, a high India VIX not necessarily means bearish for stocks. Instead, the India VIX is a measure of market perceived volatility in either direction, including an upside,” said a foreign brokerage’s technical research head, who is not authorised to speak to media.
TIME TO WORRY
- The day to day rise in the fear factor gauge on April 25 is the highest in over a month
- Higher the India VIX values, higher the expected volatility and vice-versa
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The India VIX had dropped to 11.58 on December 22, 2017, but thereafter rose to 14 levels by mid-January in 2018. In early February, the India VIX hit 24 level but has consistently dropped since then.
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