India Stocks Fear Gauge Hints At More Volatility As US Election Looms

India's fear gauge broke out of a technical zone and reached August levels, suggesting that it might soar even higher as traders get cautious of the neck-to-neck US elections.

India VIX, the measure of market volatility, rose past the 16.69 mark on Monday, breaking through the three-month inverted head-and-shoulders pattern, according to Bloomberg.

The gauge spiked as much as 13.9% on Tuesday and pared off to near the previous close of 16.98 as of 10:50 a.m. The volatility comes amidst a record selloff by foreign institutional investors in the last month.

Global funds have liquidated assets worth around Rs 1.3 lakh crore since September 27, according to data from NSE. Domestic institutions bought a total of Rs 1.23 lakh crore worth of shares throughout that time.

The last surge in the volatility index was seen in August when the unwinding of the Japanese Yen carry trades crippled Dalal Street along with other global stocks. In early June, the index spiked in the run-up to the Lok Sabha elections' poll outcome.

India VIX hasn’t reached 32 since June 2020, when India was dealing with rising Covid cases and a border conflict with China, according to Bloomberg.

The much-anticipated US elections will be held on Tuesday, Nov. 5. with polls indicating a tight context with votes narrowly split between Donald Trump and Kamala Harris.

Retail investors must diversify their portfolios by investing in multiple asset classes, including equities, bonds, gold, and cash, to enhance diversification and mitigate risk, Vinod Nair, Head of Research, Geojit Financial Services, said.

"We believed that each of these categories offered strong investment opportunities and also strengthened the portfolio in case of hike in volatility."

The mid-and small-cap indices had corrections of 7.3% and 4.5%, respectively, from their recent peaks, while the Nifty saw an 8.8% correction from its most recent peak.

"We expect the start of the Samvat to be positive in the month of November in the aftermath of the October correction," Nair said. "However, the volatility is expected to continue in the initial quarters due to a sharp correction in corporate earnings and in anticipation of a contraction of India's premium valuation. "