The volatility index, or VIX — clearly paints a rather cautious picture ahead of general elections. The NSE India VIX, which has remained firm above 16 during January-April, crossed the 20-mark for the first time in 2019.
The India VIX shot up by more than 9 per cent in Monday’s trading session. Intra-day, it touched a high of 20.4575. The 52-week high of the VIX is 22.8150, registered on October 31, 2018.
The India VIX has remained firm even when the Nifty 50 had been hovering close to its all-time high. The India VIX is calculated taking into account the options premium on key strikes of the Nifty that reflect the implied volatility in the overall market.
The Nifty 50 index on Monday closed at 11,604.50, against the previous day’s close of 11,665.95. Intra-day, the index touched a high of 11,710.3 and a low of 11,549.1.
According to analysts, the fear gauge has been hovering well above 15 for quite some time, signalling the risks in the market. “The crossing of the 20-mark suggests the volatility index could peak out soon, and the market return to normal mode once the key uncertainty is over,” said a Chennai-based analyst. Till such time, one has to remain cautious, he added.
Considering the Lok Sabha elections in the near term, traders seem to be anticipating a rise in volatility which led the volatility index to close above 20 for the first time this calendar year, said Ruchit Jain, Equity Technical Analyst, Angel Broking.
Nifty 50 option-based index
According to the NSE, India VIX is a volatility index based on the Nifty 50 Index options prices. From the best bid-ask prices of Nifty 50 options, a volatility figure (per cent) is calculated which indicates the expected market volatility over the next 30 calendar days.
Generally, options prices show higher prices when expectations of volatility rises. Rising volatility indices are not a good sign for India. The current rally, which has been fuelled mainly by foreign funds, will taper off if global fund houses adopt a risk-off strategy.
“The Nifty index witnessed some profit-booking and ended the day with a loss of more than half a per cent. However, looking at the historical data, we are still optimistic on our market and advise traders not to panic till VIX is trading below its resistance around 22,” Jain added.