Fear on the Street: Index gauging investors' risk perception jumps 10%

India VIX indicates investors' perception of annual market volatility over the next 30 calendar days

India VIX, a measure of investors’ perception of the risk of sharp swings based on options prices, rose on Thursday by 10.5 per cent to 24.56 amid a steep correction in the benchmark indices.

On a year-to-date, the fear gauge has risen nearly 50 per cent. This is during a period when the Nifty 50 has fallen 10.3 per cent.

VIX indicates 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.

Indian equities witnessed on Thursday a sharp selloff on the back of weak global cues. Even minutes from the Reserve Bank of India’s (RBI) meeting suggested a more hawkish tone for a June meeting of its Monetary Policy Committee.

Nifty opened a gap down and remained under pressure throughout the session to finally end with a loss of 431 points, or 2.7 per cent, at 15,809 levels. Broader market too witnessed a sharp fall, with the Nifty Midcap 100 shedding 3 per cent while the Nifty Smallcap 100 slipping 2.7 per cent. All sectoral indices ended in negative territory with IT and Metals being the worst hit, down 3 per cent and 5 per cent, respectively.

Global markets tumbled 2-3 per cent as investors worried about inflation and a potential global economic slowdown. The UK inflation accelerated to 9 per cent, highest level in 40 years as Russia’s war in Ukraine fuelled further increases in food and fuel prices.

"Rising inflationary pressure, continuous FIIs selling and rupee depreciating to all time low have turned investors pessimistic in the near term. After a minor pause, sharp selling was again seen in the market and it was unable to hold at higher levels. Rising VIX is further giving discomfort and suggesting wild swings ahead. Nifty has broken its key support levels and till it is below 16,000 - weakness may continue towards 15,500," said Siddhartha Khemka, Head - Retail Research, Motilal Oswal Financial Services.

Technical analysts believe that the Nifty has formed a bearish candle that indicates further weakness from the current levels. "Currently, the index is trading near 15,700-15,750 support level, hence a quick pullback rally is not ruled out if the index succeeds to trade above 15,700. For traders, as long as the index is trading below 15,900, the correction wave is likely to continue and below the same it could retest the level of 15,700. On the further down side, the index could slip to 15,600. On the flip side, above 15,900, the Nifty could move up to 16,000-16,100 levels," said Shrikant Chouhan, Head of Equity Research (Retail), Kotak Securities.

Analysts are advocating a ‘Sell on Rise’ strategy on the markets for short term trading as the strong grip by the bears could continue in the near term.

"Thursday's fall indicates that bears are in control as the Nifty has completely reversed the recent gains and again reached closer to the March low. And, indications from the global indices, especially US markets are pointing toward a further decline. Traders should align their positions accordingly," said Ajit Mishra, VP - Research, Religare Broking.