India VIX, a measure of investors’ perception about the risk of sharp swings based on options prices, has retreated sharply amid a rise in the equities. The fear gauge has slid 20% in the last one month and nearly 47% in the past six months to 13.48. The Nifty has risen 4.7% and 15.3%, respectively, in the same period to 18,484. The Nifty and India VIX typically share an inverse relation.
The VIX is meant to indicate investors’ perception of the annual market volatility over the next 30 calendar days. The higher the value, the higher is the expected volatility and vice-versa.
For example, if India VIX is 13, this represents an expected annual change of 13% in the Nifty over the next 30 days. This implies the value of the Nifty is projected to move in a band of 13% (on both upper and lower sides) over the next one year for the next 30 days. So, if the Nifty is at 18,484, the expected range of the Nifty for the next year is between 16,081 and 20,887.
The gauge shot up in the aftermath of the Russia-Ukraine war to close at the year’s high of 31.9 on February 24. After remaining above-24 levels in March, the gauge slid below 20 post July, before falling below 15 this month.
The VIX touched its historical peak of 85.13 on November 17, 2008, in the aftermath of the collapse of Lehman Brothers.
“Led by broad-based buying, domestic indices witnessed solid gains as investors digested the latest FOMC meeting minutes, which hinted that the rate hike cycle may be slowing down. The optimism was further boosted by falling crude prices and the declining dollar index…” Vinod Nair, head of research at Geojit Financial Services, said.