VIX VAPOUR RISING

Election-related anxiety catches up with the markets; volatility index shoots up days after a record low

This, experts thought, was unusual. A measure of the market's expectation of volatility in the next 30 days, the Vix is also called the "fear gauge". Lok Sabha elections are usually a period of volatility for the markets and anxiety for traders.

The Vix is computed on the basis of the NIFTY Index Option prices. The higher the reading, the higher is the expected volatility. A lower reading says option traders do not expect huge gyrations.

That all-time low now appears much further back in time than it actually is. Between April 23 and May 9, the India Vix index rose for 11 straight sessions to 18.2, its highest close since October 17, 2022. The benchmark Nifty 50 index, too, has come down 3 per cent from its peak, while the Nifty Midcap 100 and the Nifty Smallcap 100 indices are down 4 per cent and 6 per cent, respectively, from their highs, registered on May 2.

A reading of less than 20 for the Vix is still considered benign, but the rise is being seen as a sign that complacency is giving way to some anxiety.

A harbinger

Market experts say traders are fretting over the voter turnout and have mixed feelings about an emphatic election result. The latest Vix reading is being seen as a harbinger of continuing volatility in the run up to the election results on June 4.

"Elections are always difficult to predict and even exit poll experts can get them wrong. The market seems to be already assuming that the current government will be re-elected, so any change of government would be a negative surprise," said Pratik Gupta, CEO & Co-Head, Kotak Institutional Equities.

Macro uncertainties are also seen to be stoking the volatility.