The India Volatility Index (VIX) spiked by over 7% on Monday, reaching an intra-day high of 16.58, indicating heightened market uncertainty as investors take stock of various economic and geopolitical risks. This surge aligns with global volatility trends and reflects growing concerns in the Indian equities market.
In the domestic market too, the investors are balancing a host of concerns including the FII outflows, muted Q2 earnings and upcoming Assembly election results.
What is the VIX?
The Volatility Index (VIX) gauges market expectations about volatility over the near-term. Typically, in periods of high market turbulence, markets tend to experience sharp price swings, and the VIX tends to rise. Conversely, when volatility subsides, the VIX declines.
Unlike price indices like the NIFTY, which are based on price movements of underlying stocks, the VIX is an annualized percentage calculated from the order book of options on a benchmark index.
Understanding the India VIX
The India Volatility Index (VIX) specifically measures anticipated market volatility in India. Calculated by the National Stock Exchange (NSE), the India VIX reflects data from NIFTY options’ order book.
Using the best bid-ask quotes of NIFTY’s near and next-month options contracts from the NSE’s Futures & Options (F&O) segment, the India VIX projects volatility over the next 30 calendar days.
Higher readings of the India VIX denote increased expected volatility, whereas lower values suggest more stable market conditions. A rising India VIX, as seen today, signals market caution, as investors prepare for potential near-term fluctuations.
Market performance intra-day
Indian benchmark indices opened marginally higher on Monday but quickly slipped into negative territory. By 9:40 a.m., the BSE Sensex was down 455.42 points, or 0.59%, trading at 77,124.89, while the NSE Nifty 50 declined 153.85 points, or 0.65%, to reach 23,378.85.
Market Outlook: Cautious trading expected this week
Analysts suggest the markets may experience subdued activity due to the curtailed trading week. They anticipate a weak opening but expect a potential recovery later in the day, supported by a possible slowdown in Foreign Portfolio Investor (FPI) selling activity.
Commenting on the Today’s market outlook Anshul Jain, Head of Research at Lakshmishree investments said that Despite Nifty testing a critical weekly support level at 23,350, a potential bounce is on the cards from these oversold levels.
Jain also added that the Bank Nifty is showing resilience, making a higher low on daily charts and holding its swing low, even as Nifty dips to new lows. This divergence highlights the relative strength of Bank Nifty, presenting a favorable setup for fresh buying. With banking stocks displaying momentum, traders may find attractive entry opportunities here amid market uncertainties.
CLSA shifts back India exposure to 20%
Last week, global brokerage CLSA announced a reversal in its trade strategy, shifting its tactical exposure. Now, CLSA has decided to increase its India Overweight back to 20% and with China seeing a benchmark exposure, down from the 5% overweight it held previously.
In October, CLSA had reduced its India Overweight position to 10% from 20% redirecting the difference to China.
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