Volatility Index Soars—What This Means For Investors

Over the past week, one term has dominated discussions on Dalal Street: the volatility index, or India VIX. This measure, commonly referred to as the "fear gauge," has been steadily climbing for 12 consecutive trading sessions, sparking concerns among traders and investors alike.

At the start of this month, India VIX surged by over 70%, signaling a growing sense of nervousness among market participants. While such spikes in volatility are not uncommon during times of uncertainty, it's essential to put the current situation into perspective.

Comparing the current levels of India VIX to historical pattern reveals that despite the recent uptick, volatility remains relatively subdued. During the 2019 general elections, India VIX reached 28.08 level, while in 2014, it spiked to 37.7. On Monday, India VIX touched 21.48, highest in more than 19 months but lower than past election cycles.

Furthermore, implied volatility, which tends to rise before significant events such as elections, has been gradually increasing since February. This suggests that much of the anticipated market turbulence may already be priced in, alleviating concerns of a more severe downturn.

While rising volatility is inevitable during significant events, both domestic and international investors can use the opportunity to buy on dips and increase returns.

India VIX is a measure that reflects the expected volatility or fluctuation in the stock market over the next 30 days. Essentially, it indicates how much the market is expected to swing up or down in the near future. A high India VIX suggests that investors anticipate significant market movements, signifying higher levels of uncertainty and risk. While, a low India VIX indicates relative stability and confidence among investors. In simple terms, it's like a weather forecast for the stock market, helping investors gauge the potential turbulence ahead and make informed decisions about their investments.