Volatility index India VIX witnessed its highest single-day jump in nine years, rising nearly 52% to hit an intra-day high of 31.71. The surge was seen after counting trends showed unexpected vote gains for the INDIA bloc in the general elections even as BJP-led NDA managed to cross the majority mark. The index closed nearly 24% higher at 25.89 on Tuesday.
In August 2015, the VIX had risen 79.1% during intra-day trade. In the last three months, the VIX Index has shot up sharply by nearly 74%.
“Historically India VIX collapses immediately after maturity of an event, which suggests that call premia has limited room for upside, even if results best exit poll outcome in favour of the ruling party,” Anand James, chief market strategist, Geojit Financial Services said. “However, given the fact VIX is yet to slip below 20, an expectation of outlier is still very present,” he added.
Going ahead, market experts expect volatility to persist till the announcement of the Union Budget.
“Currently, there is slight uncertainty over how the government will be formed. Many of the stocks that were overpriced like PSU stocks, defence stocks and capital goods, have witnessed selling on Tuesday,” Amit Kumar Gupta, founder, Fintrekk Capital said.
“A lot of things will become clear once the budget is announced. Considering that a sizeable portion of women in rural India voted against BJP, the new government is expected to increase its focus on rural consumption,” he added.
“With the VIX rising 40% today, it is expected to approach 34-36, which would further add to the pressure on the indices,” said Sudeep Shah, deputy VP and Head of Technical and Derivative Research at SBI Securities.
The current VIX levels of around 26-28 suggests strong uncertainty and likelihood of a negative bias. The VIX seems to be heading higher and may touch 34-35 range, say technical experts.
StoxBox Technical and Derivatives Analyst Avdhut Bagkar feels that that the VIX must cool off below 20 to regain the positive bias.
“Overall trend to witness strong volatility and uncertainty will continue to prevail in the short run,” Bagkar said.
