India VIX jumps nearly 8% as NIFTY50, SENSEX plunge; key triggers behind spike in market volatility explained

The volatility gauge, India VIX, surged nearly 8% to an intraday high mark of 13.64 level on Friday, June 19, following a weak market sentiment amid an IT stocks sell-off.

Over a year’s time the NSE's Volatility Index, or VIX, has fallen 5%, while for six months’ time it has zoomed 42%. It had touched a low of the 8.18 level in 2023. At 2:03 PM, the index was at the 13.40 level, surging 5.72%.

Meanwhile, the NSE NIFTY50 index has fallen 1% to its intraday low of 23,924.90, while the BSE SENSEX has crashed 910.5 points, or 1.17%, on Friday.

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.

India VIX is a volatility index derived from NIFTY index option prices. It is calculated using the best bid-ask quotes of NIFTY options contracts to indicate the expected market volatility over the next 30 calendar days. The index follows the CBOE methodology, with modifications to suit the NIFTY options order book, including the use of cubic spline interpolation.

The fall in VIX, or fear gauge, indicates that the investors believe that the worst of the declines may not be over.

Here are the factors contributing to the market fall on Friday

The NIFTY IT index is trading over 5% down on Friday at the levels last seen in April 2023. The sharp plunge in the IT stocks was primarily driven by overnight carnage in Accenture Plc, which tumbled 17% after it released its quarterly earnings and guidance.

Taking cues from the overnight correction, the IT stocks in India, like Infosys (-8%), Wipro (-2.8%), TCS (-5.8%), HCL Tech (-3.8%), and Tech Mahindra (-4.4%), also witnessed immense selling pressure on Friday.

Crude oil prices edged higher on Friday, a day after being on track for a sharp weekly decline, as shipping through the Strait of Hormuz began to normalise following a temporary US-Iran peace agreement.

At the time of writing the piece, the price of Brent crude oil was up 0.84% to $79.82 per barrel, while the US West Texas Intermediate (WTI) crude gained by 1.84% to $78.01.

Switzerland on Friday said the talks between the US and Iranian negotiators on a pact to end the Middle East conflict would not take place, as Vice President JD Vance dropped plans to travel ​to the country, adding to uncertainty about whether a lasting truce can be found.

"The logistics of these negotiations have never been simple or predictable," the White House spokesperson said in ‌a statement on Thursday night. Vance and the US delegation had been ready to depart as soon as plans were finalised.