Corona crisis: India VIX declines but market experts say worst not over

Published: April 2, 2020 9:20:16 AM

The VIX measures the fluctuations expected in the underlying index, which is Nifty in the near term

Corona crisis, India VIX, market experts, foreign portfolio investors, Indian Volatility Index, indian markets, Kotak Securities, sebi, NiftyThe Volatility Index measures the fluctuations expected in the underlying index, which is Nifty in the near term.

By Urvashi Valecha

Indian markets have had a choppy ride since February as equities started pricing in risks emanating from the spread of Covid-19. As foreign portfolio investors kept up the heavy selling pressure, volatility has spiked to levels last seen during 2008, after the global financial crisis broke.

Indian Volatility Index (VIX) , however, has been falling since then and closed Wednesday’s trading session at 60.52. The benchmark Sensex ended the day down by 4.08% or 1,203.18 to close at 28,265.31. Nifty50 also declined 4% or 343.9 points to close at 8253.8. VIX is calculated on the basis of the order book of Nifty options. It helps traders measure the degree of volatility or

fluctuations expected in the market over a period of 30 days. It is also known as the fear gauge since it portrays the stress in equities. VIX, which was at 10.5 in December 2019 spiked to 83.61 on March 24. During the 2008 financial crisis, VIX had reached 82 mark.

According to Shrikant Chouhan, executive vice president — equity technical research, Kotak Securities, one cannot expect a vertical fall in VIX until there is some concrete solution to fight Covid-19. “VIX has corrected to 62 from 82, mainly due to little bit stability in world markets. Many developed and emerging markets have banned the short-selling or restricted to specific stocks. It has helped to curb short-sellers and saved the market from falling vertically. However, till the numbers of infected cases from the US are not declining, VIX can move upward,” he said. In India too, the Securities and Exchange Board of India had announced several measures to curb volatility in the markets last month.

Market experts also stated that after the Nifty reached the 9,000 mark last week from 7,511, the traders and investors received some respite. Ruchit Jain, equity technical analyst, Angel Broking, stated that the India VIX is still trading at much higher levels than normally seen in a stable market environment. “With VIX still above 50, the use of options as insurance on long equity positions is diminished as the higher volatility makes options very expensive,” he said.

The Volatility Index measures the fluctuations expected in the underlying index, which is Nifty in the near term. When VIX is higher, it indicates that the investors are feeling uncertain about the fluctuations. Gaurav S Ratnaparkhi, senior technical analyst, Sharekhan by BNP Paribas, however, believes that in the coming week, VIX levels may come down to 45 or 50. “As long as the market continues to trade between the 7,500 to 9,000 levels, the volatility index will keep coming down. It could even reach 45 or 50 levels in the coming week. When the market breaks the range of 7,500 to 9,000, then you could see the volatility spike up again,” he said, adding that the Nifty is currently in a consolidation phase.

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