India VIX cools down further, inches closer to 30 levels, but is the worst behind share markets? —

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Updated: Jun 03, 2020 6:21 PM

The fear gauge of India equity markets, the India VIX index was something that inched higher and higher during the month of March.

Analysts and Dalal Street experts say the news of India VIX climbing down to March levels should be taken with a pinch of salt as it could bring back some tough fight between the bulls and bears.

The fear gauge of Indian equity markets, the India VIX index was something that inched higher and higher during the month of March. This was when the S&P BSE Sensex tanked over 12,000 points or 32% and the Nifty 50 dived down to 7,500 levels. However, since then the India VIX has scaled-down and is now sitting at the same levels where it was during the first week of March. In the last few days, the index has been hopping between 30 and 31 levels. Could this mean the worst is behind the stock markets or is it an indicator of a revisit of the March horrors?

Analysts and Dalal Street experts say the news of India VIX climbing down to March levels should be taken with a pinch of salt as it could bring back some tough fight between the bulls and bears. “Share markets are now again starting towards the worst, what we saw in the last few days was a bear market rally and those always end with a share upside, that we have just seen,” Vishal Wagh, Research head, Bonanza Portfolio told Financial Express Online. Since May 18, BSE Sensex has surged 4,000 points or close to 14%. Uncertainty still looms large over how India Inc. will get back on its feet amidst the coronavirus pandemic that has so far infected more than 2 lakh people in India.

Volatility in the Indian equity markets had surged as high as 83.61 in the last week of March when most of the stocks on Sensex and Nifty tanked to levels that were almost unimaginable at the beginning of this year. “When the Nifty 50 was around 7500 levels India VIX was high and since then it has come down,” said S Ranganathan, Research Head, LKP Securities. “Basically it was created by the bank nifty, it is an index that creates a lot of volatility in the market. My sense by generally using the index to gauge the extent of volatility is that it has come down significantly to very comfortable levels,” he said. But the outlook for the markets remains difficult to predict according to Ranganathan. “If we see further reforms from the government we will see broader participation, which is needed at this juncture after being missing for almost three years now. That’s what the market is hoping for. From here on, it will be a good fight between the bulls and the bears,” he added. 

The long-term trend for the Indian share market remains downward, according to Vishal Wagh. “We are expecting 40-45 levels for India VIX again. It has been consolidating around the 30 levels for long but it hasn’t gone down, so volatility could be back and bears could follow,” he added.  Currently, markets have been rejoicing the opening up of businesses across the country and that has led to the rally, according to analysts. Sensex ended in the green for the sixth consecutive day, up 284 points while Nifty 50, for the first time since March 11, tested the 10,000 mark on Wednesday.

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