The India VIX index hit a 14-month low of 12.55 points on November 14. According to the data available on the NSE, showed that the last low for the VIX index was on September 21. The index has fallen 83 per cent from the record high of 86.63 on March 24, 2020. The high in March also marked the bottom for the crash in the global stock market due to COVID-19.
What is the Volatility index?
VIX or volatility index, is a measure of the market's expectation of volatility that is maintained by the National Stock Exchange. It basically is an indicator of fear in the stock market, which means that the low VIX indicates rising confidence among investors for good returns from the market over the next few months. The index generally displays the volatility over the next 30 calendar days and is calculated by looking at the movement in the price of options contracts on the Nifty 50 index.
The index has gone below 15 points, indicating sharp drawdowns in equity markets in the upcoming months. On Thursday, the index was at 14.88, still below the 15 mark. It was in June 2021 when the volatility gauge went below 15 and started to move above the level from October, when the COVID-19 rally peaked.
VIX during the pandemic
Between October 2021 and June 2022, the benchmark equity indices went down by more than 15 per cent and were almost entering bear market territory. But the broader market indices weren't as lucky as the Nifty Midcap and Smallcap indices, which went down by 25 per cent from their record highs.
In February 2020, the volatility index was trading below 15 as the global market expected the damage caused by the pandemic to be limited to China. But by March 2020, when the pandemic was spreading to other parts of the world, the benchmark indices had gone down by 30 per cent from their highs in February 2020. This was also due to the increasing fear that India would soon be under complete lockdown.
What to expect?
Now, as India heads toward 2023, investors are hoping for better economic growth that will help the domestic markets outperform China, Europe, and the US. But there have been some skeptics who have warned against rich valuations and evidence of earnings growth slowdown.
According to Kotak Equities India's high current account and fiscal deficit were not important when the global interest rates were low, but given the high cost of borrowing they matter more now than earlier. In a note on Wednesday, Sanjeev Prasad, Anindya Bhowmick, and Sunita Baldawa of Kotak Equities said, “In our view, the market is ignoring certain challenges to India’s medium-term growth story.”
The brokerage also has concerns that the weaker-than-expected economic recovery and higher-than-expected domestic interest rates will limit any earnings growth going forward.
