Why did INDIA VIX index climb 10% in Monday's trade? Analysts weigh

Sensex and Nifty declined ahead of the US Federal Reserve's and Bank of Japan's (BOJ's) policy decision slated on Thursday, December 19, 2024.

US FED policy and also some many central bank policy ahead.Indian benchmark index Sensex slipped 574.91 points or 0.69 per cent in trade recording an intraday low at 81,558.21. Similarly, the National Stock Exchange (NSE) Nifty50 dropped 166.35 points or 0.67 per cent and logged an intraday low at 24,601.95. The indices declined ahead of the US Federal Reserve's and Bank of Japan's (BOJ's) policy decision slated on Thursday, December 19, 2024.

 

Amid nervousness in the markets, the INDIA VIX index, a volatility index that measures the market's expectation of future volatility based on the Nifty50 index options, rose 10.8 per cent in trade and reached an intraday high at 14.47. 

 

Gaurang Shah, head investment strategist, Geojit Financial Services attributes the rise in the VIX to increasing volatility in the markets with selling pressure in certain pockets and buying on the lower ends.

 

"This higher level of India VIX is attributed to higher volatility in the markets," Shah said. 

 

Meanwhile, Deepak Jasani, Senior VP - head of retail research at HDFC Securities, believes the INDIA VIX has begun to pick up with the new F&O weekly expiry. 

 

"The index is in the range of 12.5 to 16, unless it moves above 16, there is no issue," Jasani said. 

 

He added: It is just a reversion as the index has fallen over the last 6 sessions, and now it is just going back to the average.  That apart, Pravesh Gour, senior technical analyst, Swastika Investmart believes the volatility is due to the US Fed and some other central bank's policy decision this week.

What does a higher INDIA VIX mean for the markets?

A rise in the INDIA VIX typically indicates an increase in market volatility and suggests that investors are expecting higher uncertainty or risk in the near future.

 

It indicates that investors anticipate larger price fluctuations in the Nifty 50 index. A rising VIX is often seen when the market is at risk of a correction (a short-term decline in prices). If the VIX moves above 25-30, it could indicate that investors believe the market is more likely to experience sharp declines in the near future.  INDIA VIX is often referred to as the "fear gauge" or "volatility index" because it reflects the level of uncertainty or risk in the market, essentially showing how much investors expect the Nifty 50 index to fluctuate over the next 30 days. It is often used as an indicator of investor sentiment.  The index calculates volatility using the prices of Nifty50 index options and reflects the implied volatility (expected price fluctuations) of these options.