CBOE VIX's drop below India fear gauge signals rally to extend

The rebound in Indian equities might get support from indications of easing volatility elsewhere around the globe. The Chicago Board of Options Exchange Volatility Index (CBOE VIX), a US measure of investor anxiety known as the VIX, has stayed below its Indian counterpart for five weeks, the longest such run since November, data compiled by Bloomberg show. The gap indicates India's market could be due for further declines in volatility."The probability of global events disturbing India's incipient stock-market recovery is reducing," Hemant Nahata, a derivatives analyst at IIFL Holdings in Mumbai, said in a phone interview. "Global fear is subsiding and so are expectations of wild price swings."

The VIX slid to a three-month low of 14.99 on Wednesday, while the India VIX Index fell to 16.8 in a second day of losses at the 3:30 p.m. close in Mumbai on Thursday.

Global stocks have rebounded in the past month, bolstered by improving data, rising crude prices and as central banks around the world indicated a willingness to continue measures to support growth and stabilize markets after a tumultuous start to the year. The Federal Reserve pared back its projection for US interest-rate hikes, citing risks to global growth that have spurred monetary easing in China, Europe and Japan over the past two months.

India's Nifty 50 Index has climbed 7.5 per cent this month, set for the biggest monthly gain since May 2014, amid speculation the nation's central bank may lower interest rates after Finance Minister Arun Jaitley in his February 29 federal budget pledged to further narrow the fiscal gap. Governor Raghuram Rajan said the central bank was "comforted" by the government's plan to shrink the gap to 3.5 per cent of GDP. He's scheduled to review policy on April 5.

The India VIX Index is headed for its third weekly decline, the longest run of losses since October. The CBOE VIX is set for a fifth weekly loss, the longest stretch in four years.

"I see the risk-on trade extending after the Fed's comments," Abhimanyu Sofat, founder at AdviseSure Ventures Pvt in Mumbai, said by phone. "India VIX will subside a bit from its current level."