Jaipur Stock：Stock market： Fear gauge India VIX rises for 9th day. What is it reflecting？

Fear gauge India VIX, a measure of market’s expectation of volatility over the near term, jumped on Tuesday for the ninth straight session. The index hit a high of 17.63 and was later trading at 16.87, up 1.95 per centJaipur Stock. With this, the fear gauge has jumped 73 per cent in the last nine trading sessions.

India VIX is a volatility index based on the Nifty index option prices. From the best bid-ask prices of Nifty Options contracts, a volatility percentage figure is calculated, which reflects the likely stock market volatility over the next 30 calendar days.

Historical trends

On Tuesday, Nifty traded in a 270-odd wide range. Anand James, Chief Market Strategist, Geojit Financial Services said the present levels of VIX, seen in isolation, are consistent with historical trends wherein a rise in VIX is usually seen when previous Nifty peaks are re-visited.

He noted that Nifty tested a record level in early April 2024, when VIX was near 11. But now VIX is above 16, when Nifty is again in the vicinity of the record peak.

"Similarly, when in mid-January 2024, when we saw a new peak in Nifty, VIX was 13.78, but three weeks later when Nifty returned to the same peak, VIX would rise to the 15-16 region, where it remained for the rest of February. What is raising eyebrows now is the steepness in the fall and rise of VIX in a small time frame," James said.

James said just three weeks ago, VIX had fallen to near record lows, after Nifty averted a major fall, having bounced off previous month’s low, thus calming investors.

"While a lot can be explained in terms of historical trends, approach of record peaks, upcoming election results, and even the liquidity impact on lot size reduction in Nifty, the recent swings are difficult to be fully attributed to. Perhaps the right way to approach this is to acknowledge that while VIX and Nifty are positively correlated, more so in a large time frame, the strength of correlation is low, especially in the short term," he said.

Hedging, elections 2024

Santosh Meena, Head of Research at Swastika Investmart said two key factors are driving the VIX's rise. "First, portfolio investors are buying protective put options to hedge their holdings. Second, traders are speculating on significant price movements post-election by purchasing both calls and put options."

Meena said India VIX typically climbs before major events like general elections. In 2019, it saw a 150 per cent jump (from 12 to 30), and in 2014, it spiked 212 per cent (from 12.5 to 39). Based on this historical context, a further increase in the VIX is likely, with a potential move towards 25 before the election results.

"The market's behavior so far resembles the 2019 pre-election period, with a potential correction followed by an upswing on results day. Crucial support levels to watch include 22300, 22000, and 21700 on the Nifty. For an upward trend to be established, a breakout above 22800 is necessary," Meena said.

James said VIX needs to sustain above 16 to elucidate higher fluctuations in option premiums.

Nifty, Sensex outlook

Vaishali Parekh of Prabhudas Lilladher said Nifty has the crucial support of 22,300, while on the upper side, it needs to breach the decisively 22,600 zone for the bias to turn positive and establish some conviction.Agra Investment

On Tuesday, the index was trading just below the 22,300 while Sensex was trading just above 73,500 level.

Varanasi Wealth Management