India VIX slips to two-year low, down 33% YTD: Here’s what is cooling market volatility

The volatility gauge India VIX on Monday, December 22, hit a two-year low of 8.86 as equity benchmark indices were trading higher.

Over a year’s time, the NSE's Volatility Index, or VIX, has tumbled 35.4%, while for six months’ time, it has slipped 29%. So far, from the beginning of 2025, the index has fallen 33%. It had touched a low of 8.18 in 2023.

The index had touched an all-time low level of 2.13 in February 2016 following a freak trade.

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 be over.

Factors behind the VIX decline

Stable equity market

The Indian equity market has been trading higher for the last two trading sessions, tracking positive global cues.

On Monday, the BSE SENSEX jumped nearly 532 points to an intraday high of 85,461.19, while the NIFTY50 index touched its day’s high of 26,148.15, rising 182 points.

Return of foreign investors

Foreign investors have returned as buyers in the equity market after a prolonged period of selling. Since December 17, 2025, foreign portfolio investors have resumed net purchases.

According to exchange data, on Friday, the foreign institutional investors (FIIs) purchased shares worth ₹1,830.89 crore, while the domestic institutional investors (DIIs) bought equities worth ₹5,722.89 crore on a net basis.

Appreciating rupee

The rupee appreciated 22 paise to 89.45 against the US dollar in early trade on Monday, supported by foreign fund inflows and a positive trend in domestic equities.

Forex traders said corporate dollar inflows and Brent crude prices hovering near $60 per barrel supported investor sentiment further.

At the interbank foreign exchange market, the rupee opened at 89.53 against the US dollar, then gained some ground and touched 89.45 against the US dollar, registering a gain of 22 paise over its previous close.

Global cues

On the global front, Asian markets traded higher on Monday amid broad-based buying, even as investors remained cautious after China kept its key lending rates unchanged.

Japan's Nikkei rose 1.82%, Hong Kong's Hang Seng advanced 0.08%, and South Korea's KOSPI surged 2.08%, while the Shanghai Composite was trading 0.66% higher.

Last week on Friday, the US stocks closed higher after a rebound in technology shares. The Dow Jones Industrial Average rose 0.38%, the S&P 500 climbed 0.88%, and the tech-heavy Nasdaq jumped 1.31%.