Fear Grips the Street

General Elections and fears over US inflation are spooking the Indian markets. How long will the uncertainty continue? 

- RAHUL OBEROI

THE INDIA VIX, also known as the volatility index, experienced a surge of over 100% in just 13 trading sessions till May 13. This sharp surge was propelled by a combination of factors, including the ongoing General Elections in the nation, relentless selling by foreign portfolio investors (FPIs), and broader global dynamics like the US Federal Reserve’s move on interest rates. Serving as a metric for gauging market expectations regarding volatility in the forthcoming 30 days, the India VIX is commonly recognised as the “fear gauge”.

Market watchers believe that during the Lok Sabha elections, the markets tend to be volatile, causing concern for traders. In 2019, the India VIX index hit a high of 28.66 during April-May, coinciding with the election period. This index is computed on the basis of the Nifty index option prices. A higher value indicates a higher anticipated volatility, while a lower value suggests that option traders are not expecting significant fluctuations.