Vix at lowest ever; range tight; profit sales seen

The Securities and Exchange Board of India (Sebi) may have given an in-principle nod for derivatives to hedge against excess volatility, but wild swings of the order envisaged by the regulator are hard to see in the near future.

The India Vix, a volatility index based on the Nifty 50 index option prices, hit its lowest ever level on Monday, at 20.74.

At the peak of volatility, in November, 2008, the index had ruled around 65 for most of the month and even breached 85.

“This seems to suggest that traders are not expecting too much volatility and we could move in a tight range of 150 points on the Nifty,” Anand Kuchelan, vice-president, Fiduciary-Euromax Capital Markets Ltd, said.

“The bottoming-out of Vix at current levels suggests that the Nifty is likely to witness strong resistance near 5200.

However, a breakdown in the Vix below 20 on the back of improved global and domestic sentiment may trigger further upsides in the Nifty,” said a report by Amit Gupta and Azeem Ahmad of ICICI Direct.

India Vix dates back to November, 2007 and is a measure of swings the traders expect in the market.

Higher the index, the more volatile the markets are expected to be; low values suggest a more complacent fare.

Going by experts, the market currently appears to be headed higher and the Vix itself is likely to show a flattish or downward trend.

“A low Vix is not too much of an issue. A rising one might be a cause for worry as it signifies a trend reversal. The underlying trend for the market is firm, although some profit booking is seen at the 5150 levels.” said Karun Mutha, head - derivatives, HSBC Invest Securities.

On Monday, the Nifty closed at 5124.

Incidentally, the Chicago Board Options Exchange Vix, a benchmark for global volatility, has also been on a steady decline. As of Saturday, the index was at its lowest level since May, 2008, on the back of improving economic data.