Fears regarding near-term risk in the markets have receded to an all-time low as market participants do not expect any sharp index movement in the absence of any negative triggers.
India VIX, a volatility index based on the Nifty Index Option prices, which indicates the expected market volatility over next 30 calendar days, on Monday dropped 10.32% to close at an all-time low of 13.04%.
Experts believe that investors do not foresee any shock, which has led to lower implied volatility (IV).
“With Europe addressing its key issues for now, the Indian government starting its reforms drive and the US Fed giving comforting statements, there is hardly any shock expected in the markets. Also, after a sharp surge in largecaps post reforms announcement, markets are taking a breather, trading in a narrow range,” said Sandeep Singhal, co-head, institutional equities at Emkay Global Financial Services.
India VIX has been in a steady decline, falling nearly 30% over the last one month since the government initiated the reforms drive.
Siddarth Bhamre, head of derivatives at Angel Broking, said investors have been writing options in the 5600-5800 range aggressively before the current expiry, which has led to IVs falling sharply over the last few sessions.
Karun Mutha, senior VP & head, equity & derivatives advisory at HSBC Invest Securities, said the drastic fall in volatility implies that markets are probably not expecting much from the expiry.
“Currently, there is no large participation and the November premiums have also fallen sharply as people are waiting quarterly results season and certain key events lined up in the month end to get over,” said Mutha.
Experts believe that VIX data as such does not have relevance to past historical data and it is difficult to draw conclusions based on this.
“However, market direction is normally inversely related to VIX movement and so if we see any reversal in VIX, markets may see some action. Till the time Nifty remains above 5600, market direction seems to be positive and we may see markets moving up further if 5730 is broken,” said Mutha.