Cooling off: Fear gauge hits 3-year low on missing macroeconomic cues

No big upmove or downmove likely, say market watchers

The India VIX Index — a gauge for market volatility — on Tuesday finished at its lowest level in more than three years. The index finished at 11.52 — the lowest since January 2, 2020. The VIX has been falling steadily after climbing to nearly 18 in January.

Also known as the fear gauge, the index is calculated by the National Stock Exchange (NSE) to measure market anticipation of volatility and fluctuations in the near term.

The current reading, indicates that trades are not expecting a big upmove or downmove in the markets due to lack of big macroeconomic (macro) triggers. The market has turned listless this month. Of the 14 trading sessions so far this month, the benchmark NSE Nifty has gained or advanced less than 0.25 per cent on seven occasions.

Analysts say trades are not taking any decisive position in the midst of the January-March results season.

“The results are a mixed bag. Technology companies haven’t given good results. Banking has been somewhat better. Markets are waiting to gauge the impact of the results and the forecasts,” says Prakarsh Gagdani, chief executive officer, 5Paisa Capital.

The trading holidays in recent weeks have also kept a lid on volatility, experts say. The low volatility is also weighing on trading volumes.

“It is subdued market activity. The volumes on the cash market are 8-10 per cent lower than last month. Trade in the derivatives segment is fine. Volumes are more or less the same. Retail participation in the cash market has come down vis-à-vis last month,” says Gagdani.

Chokkalingam G, founder, Equinomics Research & Advisory, says even institutional buying has come down as investors remain circumspect in the earnings season.

“Although foreign portfolio investor (FPI) selling has stopped, significant inflows are not coming. Even domestic institutional investors have eased up on their buying,” he says.

So far this month, FPIs have been net-buyers of Rs 6,613 crore. On Tuesday, they were net-sellers of Rs 407 crore, according to provisional data from exchanges.

The absence of negative triggers in the US market has also led to a decline in volatility.“There is a cool-off in volatility, even in the US market. Even the Chicago Board Options Exchange VIX is falling. There is some instability and rangebound activity in the Dow Jones Industrial Average,” says Chandan Taparia, head-technical & derivatives research, Motilal Oswal Financial Services.

Taparia says FPIs, who were heavily short in the markets in March, have covered their short positions.

“We have already seen recovery. There will be momentum after the monthly expiry. Even in this consolidation, the base of the market is shifting higher. We are consolidating at the upper end of the trading range. So until it is about 17,442-17,500, the overall structure will remain positive for 18,000. This consolidation will be over by the month end and there could be some sort of momentum,” says Taparia.

Analysts say some significant change in corporate earnings or macro cues like gross domestic product growth, inflation data, and change in FPI flows could lead to a breakout in the market. The monsoon and state elections, too, could have a bearing on the market.

“But the main trigger will be the trajectory of rate hikes in the developed world,” says Gagdani.