India VIX jumps 28% as SENSEX crashes 1,050 pts, NIFTY50 at 23,100 level; factors behind market decline

The volatility gauge, India VIX, surged as much as 28% to an intraday high mark of the 13.22 level on Thursday, September 24, following a crash in the equity benchmark indices.

At close, the index ended at the 12.70 level, soaring 22.76%. Over a year’s time the NSE's Volatility Index, or VIX, has jumped 21%, while for six months’ time it has fallen 48.5%. It had touched a low of the 8.18 level in 2023.

The volatility index is a measure of the market’s expectation of volatility over the near term. Volatility is often described as the “rate and magnitude of changes in prices" and, in finance, often referred to as risk.

The index also indicates the expected short-term fluctuations in an underlying index. It is expressed as annualised volatility (in percentage terms, e.g., 20%) and is derived from the order book of the index’s options.

Here are the factors contributing to the market fall on Thursday

IRDAI proposes to ban ‘dark patterns’ on insurance websites

This is because the Insurance Regulatory and Development Authority of India (IRDAI) proposed changes aimed at banning dark patterns, rationalising insurance distribution costs and recalibrating commission structures.

The proposals triggered a sharp sell-off in insurance distribution platforms such as PB Fintech and Turtlemint, as the proposed changes could have a more direct impact on their distribution economics. In contrast, the impact on insurers is expected to vary depending on their existing cost structures and distribution mix.

Bank stocks under pressure

Banking and financial stocks were hit hard after the Insurance Regulatory and Development Authority of India (IRDAI) proposed sweeping changes to insurance distribution, including tighter Expense of Management (EoM) limits and lower commission caps.

At the end of the session, the NIFTY Bank index tanked 1.96%, or 1,110.40 points, with 13 out of 14 constituents declining. The fall in the NIFTY Bank index was among the key factors behind the sharp decline in the benchmark indices on the NSE.

Surge in crude oil prices

Brent crude futures surged to $100 per barrel after Iran and the ‌United States remain divided over how to bring an end to their war, but diplomacy must continue, a senior Iranian official told Reuters on Wednesday.

Brent crude hovered around $105.4 a barrel on Thursday after gaining over 2% in the previous session.

Broader market and top laggards

The NIFTY Midcap 100 and NIFTY Smallcap 100 were underperforming the main equity benchmark indices, declining 2% each. All the sectoral gauges were also trading with losses.

As many as 47 stocks on the NIFTY50 index closed in red. Bajaj Finance, HDFC Life Insurance, Adani Enterprises, Bajaj Finserv and IndiGo were the top laggards on the index.