Market volatility spikes as India VIX hits one-year high; here’s what to expect

The volatility gauge India VIX traded at a one-year high on Monday, March 23, surging to 26.38, amid weak market sentiment due to geopolitical tensions, a weak rupee and elevated crude oil prices.

Over a year’s time the NSE's Volatility Index, or VIX, has skyrocketed 109.5%, while for six months’ time it has zoomed 147%. It had touched a low of the 8.18 level in 2023. At 12 PM, the index was at the 26.47 level, surging 16.01%.

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.

Meanwhile, the NSE NIFTY50 index has lost over 10% in the last six months. Shares of Eternal (-56%), InterGlobe Aviation (-33%), Trent (-30%), Adani Enterprises (-29%) and ITC (-28%) have been the top laggards on the index during the period.

Here are the factors contributing to the market fall on Monday

• The Indian rupee dropped to a new low of 93.92 against the US dollar during the early market hours on Monday as investors focused on the continued demand for the greenback amid the escalating conflict in West Asia over key energy resources and crude oil.

Investing.com data shows that at the opening bell, the USD/INR (US dollar/Indian rupee) rates were at 93.738 on Monday, which later surged 0.18% to 93.846, hitting a new low against the greenback.

• Crude oil prices in the global market were trading around $108 per barrel (bbl) on Monday as tensions loomed over a potential supply crunch in the global energy market after Iranian President Masoud Pezeshkian’s comments on Strait of Hormuz closure.

• The Indian stock market continued to trade lower, with NIFTY50 witnessing the worst monthly fall since March 2020. The index has tumbled 14% since its all-time high level.