Volatility index India VIX bounces off 80% from all-time low; here is what it means for Dalal Street

NSE’s India VIX, known in market parlance as the volatility or fear gauge, has come a long way recovering from an all-time low in May 2023. Many analysts believe that its current range, around the 15 mark, signals volatility will take off on Dalal Street going forward.

What is India VIX exactly? What does the fear index indicate?

For the unversed, India VIX is an important measure. Just like stock indices and futures, traders make use of the VIX to gauge the overall mood in the market. While higher levels of VIX indicate investor apprehension and market instability, lower levels foster greater market confidence.The India VIX measures market volatility in India using the headline Nifty50 index.

Primarily, the index offers information on expected price volatility over a 30-day period, which aids traders and investors in selecting the best moments to purchase and sell.

Furthermore, the metric ranges between 15 and 35. The corresponding price fluctuation range is somewhere in the range of +/-15. This is indicative of values for a month, or 30 days.  

Although experts are often divided on the exact levels to be interpreted as positive and negative signals for the headline index, it is generally believed that values lesser than 15 on the VIX indicate a low degree of volatility and those close to 35 show high volatility.

For instance, the barometer logged its all-time low of 8.18 on May 25, 2023. It soared to all-time high level in November 2008-notching levels of 92.53 amid the sub-prime crisis in the US.

What India VIX nearing 15 levels suggest for Indian markets?

The VIX has broken upwards from its consolidation zone, according to Avdhut Bagkar, Derivatives & Technical Analyst at StoxBox.The index was last seen trading in 0.2 per cent higher for the day at 14.72 around noon on Tuesday (January 2, 2024). The next hurdle for India VIX is at 18, and if the index succeeds in crossing this mark, stock market may witness mild correction, which might be viewed as a healthy correction, Bagkar said.

The 200-weekly moving average (WMA) is placed at 19, which will act as a barrier for the VIX index, whereas 12 remains a critical support mark on the downside, he added.

Rupak De, Senior Technical Analyst at LKP securities if of the view that after months of consolidation, the INDIA VIX appears to be on the verge of a significant spike in the coming months. A breakout from consolidation is evident on the monthly timeframe, indicating a potential increase in volatility. A clear move above 15 could potentially trigger a strong upward surge in the panic index, as crossing this critical average may prompt the activation of the panic button.