Vix near 10-week low as traders shy away

The National Stock Exchange volatility index or Vix, a gauge of of how much of a rocky ride market participants expect in coming sessions, is nearing an interim low last seen over two months ago.

Lack of participation as evidenced in low volumes has resulted in the drop in the index, say experts, though sentiment is turning marginally positive.

The volatility index is calculated on the basis of the change in the price of index options, derivatives whose price changes with a change in the index levels.

The greater the expected change in the underlying index, the more the Vix rises.
The Vix has fallen to 18.8, close to a two-and-a-half month low of 18.75 seen in mid-September.

“People have lost money in the recent fall and there appears to be a lack of participation, which may have resulted in the Vix falling. The markets have settled down and have a positive bias which suggests that we could be looking at 6100,” said Monal Desai, head of institutional derivatives at Prabhudas Lilladher.

The 50 stock index of the National Stock Exchange, the Nifty, closed above the 6000 mark on Thursday. It closed at 6011.70. The bellwether index for the Bombay Stock Exchange, the Sensex, has recovered 856.09 points or 4.47% from an over two month low of 19136.61 touched last Friday. It closed at 19992.7 on Thursday.  

A lower Vix is also a seasonal phenomenon, suggested analysts.

“December has historically been less volatile with lower volumes and markets have given positive returns during this month in the past. Markets are still recovering from state of panic and the participation is low at the moment because of lack of confidence,” said Parag Doctor, associate vice president at Motilal Oswal Securities.

Average volumes during the last four sessions dropped 30% to Rs1.17 lakh crore compared with Rs1.68 lakh crore over the preceding days in November.

The market had dropped after a series of scandals including allegations of underpricing of second-generation mobile telephony spectrum and a bribe-for-loan scandal involving public sector banking executives.

On the global front, markets have been hit by the raising of interest rates seen in China and Korea which could affect immediate growth in the economies.

Fears of a sovereign default in Europe have also kept investor’s fingers hovering above the sell button.

Over the last four sessions, foreign institutional investors have been net buyers purchasing Rs2,200 crore more of Indian equities than they sold, according to regulatory and exchange data.

Domestic institutions have been net sellers over the same period, unloading over Rs300 crore as insurance companies which had been net buyers during the fall, turned off the cash taps in recent sessions, according to dealer sources.

Setors which had fallen have seen some signs of a bounceback.

The realty index which had fallen the most after the bribery scandal rose 12.42% in four sessions. The banking index was up 6.86%.

The consumer durables, metals and public sector undertaking indices were also up in excess of 6%.

“With the dollar not strengthening further we are seeing some foreign buying re-emerge. Markets are not expected to see much upside beyond 6050-6100 levels in the short term and we are advising our clients to square off their long positions,” said Siddarth Bhamre, head-derivatives at Angel Broking.