India VIX drops to record closing lows as DIIs cushion FII selloff

The India VIX is down almost 28 per cent so far this year, and is down nearly 55 per cent from this calendar year's highs of 23.18

In signs of potential calmness in India's stock market, the domestic equity volatility index, India VIX, is trading near record closing lows.

  On Friday, the index ended at its lowest ever closing of 10.12, but rose to 10.68 levels on Monday in intraday deals. Analysts attribute these low levels to the absence of any immediate key triggers for the markets.

  The volatility gauge measures the market's expectation of future volatility based on Nifty50 index options contracts. It typically rises when market volatility is expected to increase, indicating higher uncertainty or risk in the near future.

  The VIX has fallen beyond the record closing level on an intraday basis. On May 25, 2023, India VIX fell to the lowest level of 8.18.

  "The decline in VIX signals that investors are factoring in India's supportive macros — robust July PMI readings, cooling inflation, and resilient domestic flows," said Harshal Dasani, business head, INVasset PMS. 

 

"For investors, low volatility should not be seen as complacency but as a sign of structural depth in the market," he added. 

Chandan Taparia, head of technical and derivatives research at Motilal Oswal Wealth Management, on the other hand, believes that the markets are pricing in all negative factors, and this indicates that the market is unlikely to decline further. 

Selling by foreign portfolio investors (FPIs) should have triggered volatility in the domestic stocks, ideally. "This is not happening as FPI sell-offs are being absorbed by domestic institutions. Domestic investors continue to buy, supported by goods and services tax (GST) revamp and GDP numbers exceeding expectations," Taparia said. 

FPIs have sold equities worth over ₹2.2 trillion so far this year, according to NSE data. Meanwhile, DIIs have bought stocks worth ₹5.4 trillion during this period.

  To add more perspective, the India VIX has fallen almost 28 per cent so far this year, and is down nearly 55 per cent from this calendar year's highs of 23.18.

 

The gauge saw huge spikes in April this year amid US President Donald Trump's trade tariffs, border tensions with Pakistan in May, and Iran-Israel war tensions in June.

 

Buy, sell, or hold?

 

Meanwhile, in the bourses, the benchmark Nifty50 index is up 6 per cent so far in 2025 and is once again testing the 25,000 mark. The index is just nearly 2 per cent from its record highs. 

"The low VIX does not necessarily mean the market is out of steam, but instead, shows that earnings visibility and liquidity support are anchoring investor confidence," Dasani said.

 

The risk-reward remains balanced rather than stretched, keeping the medium-term outlook constructive, he added.

  Instead of fearing a volatility spike, disciplined investors should, Dasani advised, treat the current environment as an opportunity to accumulate quality assets with a medium-term horizon.

  Looking ahead, potential triggers include the GST 2.0 rollout on September 22, the upcoming US Federal Reserve policy decision (Wednesday) and Reserve Bank of India (RBI) policy meeting, analysts said.

 

The second earnings season will be crucial, especially for banking and consumption-heavy sectors, Dasani said, adding that expectations are moderate after a soft June quarter.