Even as US stocks are playing Dr Jekyll, turning more volatile by the day, domestic stocks have become a personification of Mr Hyde over the past one week.
Analysts see limited impact of US volatility on the local market
Even as US stocks are playing Dr Jekyll, turning more volatile by the day, domestic stocks have become a personification of Mr Hyde over the past one week. Bucking the common perception that the market turns volatile during futures expiry, the Sensex has been trading in a tight intraday range of 14,400-14,560 over the past week.
Volatility in the US market had been on an uptrend as it awaited the Fed rate announcement on Thursday. But, even as the Fed kept rates unchanged, US stocks still got bruised on Friday by the London bomb scare.
The Chicago Board Options Exchange Volatility Index, better known as the VIX, reached its highest level since February this week, rising to almost 19 on Tuesday, before declining to 16.23 on Friday. Experts see it rising further in the time to come.
“Yield curve steepness, our estimate of the equity risk premium, and private sector credit growth all indicate that elevated volatility is likely over the next two years,”
Citigroup analysts Tobias M Levkovich, Lorraine M Schmitt and Daniel C Kaskawits said last week in their North America equity strategy report.
The rise in volatility is a clear signal for investors that large-caps would outperform small- and mid-caps, the trio said. “Over the past 15-20 years, large-cap stocks have outperformed during periods of rising volatility,” they said.
VIX averaged 11 in the final quarter of 2006, less than 13 in the first quarter of this year, and is up to 13.65 this quarter. Volatility declined in the first half of the decade; the 2002 average was more than 28, waning to 22 in 2003, less than 16 in 2004 and going below 13 in 2005.
Analysts, though, see limited effect of US volatility on Indian stocks. Deepak Mohoni, CEO, Trendwatchindia.com said, “US indices are becoming more volatile.
This could have some effect on the global markets as US is the most watched market.”
Vijay L Bhambwani of BSPLIndia.com, however, felt the Indian market has grown in depth and size sufficiently for the VIX to have any effect. “I don’t see any direct relation between the VIX index and Indian markets,” he said, adding, it is “quite possible” that markets break away from the current trading range. He saw some resistance for the Nifty at 4,325-4,350 levels.
Mohoni felt breaking from the current tight range of 14,400-14,560 will be crucial for the market to make directional moves, the chief trigger for which could be from the international markets.
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