India VIX, also known as the “fear index,” measures the expected market volatility over the next 30 days. It’s calculated based on the near and mid-term options contracts of the Nifty 50 index. High VIX values indicate higher expected volatility and vice versa. Historically, India VIX has shown an inverse correlation with the Nifty and Sensex indices. When India VIX rises, the market tends to experience increased volatility and uncertainty, often leading to downward pressure on stock prices.
In recent developments, India VIX surged by a staggering 100% over 13 days, reaching 21.03, reflecting heightened market uncertainty. This spike coincides with the ongoing Lok Sabha elections’ fourth phase. The Sensex plummeted to 71,882.90, shedding 782 points, while the Nifty dipped below 22,000. This decline marks the sixth drop in seven sessions for the Nifty.
The reduced voter turnout in the initial phases has added to the market’s uncertainty regarding the election outcome, despite the prevailing consensus favoring the incumbent’s return. Furthermore, Foreign Portfolio Investors (FPIs) have been selling off Indian stocks, possibly due to shifting priorities from “sell China, buy India” to “sell India, buy China” amid China’s outperformance and India’s underperformance in recent times. This change in stance is influenced by the comparatively cheaper valuations of Chinese stocks and the relatively higher valuations of Indian equities.
Overall, the combination of election-related uncertainty and FPI selling pressure has contributed to the recent turbulence in the Indian stock market, with the India VIX signaling heightened volatility ahead.
