India VIX jumps 23% on jittery markets

India VIX was up 23% to a 11-month high of 17.42 even as the benchmark Sensex and Nifty plunged

India VIX, the country’s first volatility index, steadily climbed through the day on Tuesday, as stocks declined on concerns of Greece’s possible exit from the European Union, as well as the fall in crude oil prices.

India VIX was up 23 per cent to a 11-month high of 17.42, even as the benchmark Sensex and Nifty plunged nearly three per cent and global markets fell seven per cent. India VIX continued to rise through the day as volatility increased, with investors surrendering long positions created in index futures and introducing fresh short ones.

“There was a lot of unwinding of long positions in the past two days and also formation of fresh short positions. We were not surprised by the sharp up-move and we expect volatility to be on the rise and the markets to fall further from these levels,” said Siddharth Bhamre, head of derivatives at Angel Broking.

Historically, there is a 50-50 chance that volatility could increase or decrease in the one-month period after such a sharp rise. According to Bloomberg data, of 58 times that India VIX rose by 10 per cent or more, 31 times the market rose by as much as 17 per cent and 27 times it fell by as much as 15 per cent.

This time, however, analysts believe the market could trend downwards.

“Largely, we have not seen the volatility sustain after a sharp rise. This time, we have a lot of events lined up which seem to be causing a lot of sentimental uncertainty. Investors are a worried lot,” said Sahil Kapoor, chief technical analyst at Edelweiss Securities.

According to analysts, the NSE Nifty could decline to below 8,000 in the weeks ahead. Based on the events in the next few weeks, analysts said the markets would remain under pressure and investors be more cautious.

General elections in Greece later this month would decide whether the country would remain a part of the European Union. Besides, the slide in oil prices is expected to continue. These factors could further push markets downwards. The Reserve Bank of India’s view on interest rates as well as the US Federal Reserve’s indication about the direction of its policy rates, would also keep markets nervous in the months ahead, analysts said.

“A lot of these global events will have a bearing on the market. Because of these, the next two-three months could see a lot of volatility,” said Sonam H Udasi, head of research at Tata Mutual Fund.