India VIX up 51%, posts biggest 1-day rally in 9 yrs amid LS polls jitters

Stock market on Lok Sabha election results day, June 4: India VIX, the volatility gauge for India's stock market, soared 51.3 per cent, posting its biggest single day rally in over nine years, as trends from Lok Sabha election results showed the Narendra Modi-led NDA facing a tight competition from INDIA bloc.

India VIX jumped over 50 per cent to  a high of 31.71 levels in the intraday trade. At 2:00 PM, it was ruling 23 per cent higher at 25.77 level, while on the bourses, the benchmark BSE Sensex index was down over 3,500 points around 72,900 levels, while the NSE Nifty50 was down over 1,000 points, near 22,180.

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In the broader markets, the BSE MidCap, and SmallCap indices slumped up to 12 per cent in the intraday trade.

The sharp downturn in equities, and the consequent surge in India VIX index comes as trends for the Lok Sabha election results showed the National Democratic Alliance (NDA) was leading in less than 300 seats.

The NDA was seen leading in 298 seats, while the INDIA alliance was seen with 228 seats.

"The steep fall in the markets is due to the results, so far, falling short of the exit polls, which the market had discounted on Monday, June 3. If BJP doesn't get a majority on its own, there will be disappointment and this is getting reflected in the market. Also, it is possible that Modi 3.0 may not be as reform-oriented as the market expected and may turn more welfare- oriented," said  VK Vijayakumar, chief investment strategist, Geojit Financial Services.

India VIX, which measures the likely volatility in the Indian markets over the next 30 days, had slumped over 22 per cent on June 3, after exit polls showed a strong majority for the BJP.

Most exit polls. on June 1, gave a clear majority to the BJP-led NDA alliance with an average seat projection of 370 seats vs 353 in 2019.

For the BJP standalone, this would have translated into 320-330 seats, with Axis My India (AMI) giving 331 (at midpoint of range). AMI expects nearly 400 seats for NDA.

As per AMI, vote share of the BJP was also expected to go up ~300bps from less than 37 per cent to nearly 40 per cent, with NDA at 47 per cent.

That said, analysts believe the markets have shown a knee-jerk reaction as there has only been two rounds of counting so far.

"The market is reacting with just two rounds of counting done. Also, due to physical counting under VVPAT, the process is slower this time around. Most TV channels are impulsive in reporting numbers and setting the narratives without factoring the number of rounds for which the counting took place. I feel the market will once again get steady and same high beta stocks will be bought," said Deven Choksey, managing director, DRChoksey FinServ.