Markets in comfort zone

It shows the overall sentiment is good. New investors can take the opportunity to start small

Retail investors should get comfort from the current market situation. Many desist from investing because they fear that once they have bought a stock or index or mutual fund, there would be a sharp fall, leading to erosion in the value of their investment.

Things look different, at least in the near term. With the National Stock Exchange’s volatility index or VIX at an all-time low of 11.79, down 21 per cent year-to-date, the market is looking very stable in the near term. “A low VIX gives comfort to investors that the market sentiment is good,” says investment advisor Gul Tekchandani.

The low volatility also comes on the back of the Sensex and Nifty trading at all-time highs of 27,000 and 8,000 points, respectively. In the past, when the stock markets were at their all-time high, the VIX was higher. For example in 2008, when the Sensex hit 20,800, the VIX was 28. In November 2013, when the Sensex hit a new high of 21,239, the VIX stood at 19.49.

Any volatility index is a measure of the market’s expectation on this over the near term. It indicates the magnitude of change in prices and the risk one faces in the near term. India VIX is a volatility index based on the Nifty Index Option prices. A volatility figure in percentage terms is arrived at from the best bid-ask prices of Nifty options contracts. This figure provides the expected market volatility over the next 30 calendar days.

Some experts also feel the market is getting into a complacent mode. As a result, there could be more sideways movement for some time. “It also means the market is unlikely to see any major move either way in the short run,” says Rishi Nathany, financial planner. So, earning a quick buck in the short term or by Diwali might not happen.

Market players suggest investors who have been waiting in the wings and missed the current rally can start putting in some money. “Since the market is not expected to move five-10 per cent either way in the next month or two, investors in a good stock or large-cap fund will not see any jump or fall in the stock price or net asset values. This will help those who have not really taken to the market still to build their portfolios,” says a financial planner. Of course, like all situations in a stock, there is a catch in this stable phase. “It also means the market is not geared up for any major event. Hence, the impact can be disproportionate in either direction,” says Nilesh Shah, chief executive, Axis Capital. On the negative side, these events can be an increase in crude oil prices or any geopolitical event. On the positive, any remarkable improvement in the economy or global change could lead to a sharp surge. Beside the VIX, one can also look at the open interest for trends in the market.