Broken Arrow: How Nifty 50's inverse relation with India VIX looks distorted in this selloff

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26 Aug, 2025 12:21

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The benchmark Nifty 50 index and India VIX – the gauge of market volatility – have snapped their inverse correlation, have both fallen in tandem during this period of market movement.

Data shows that since February 19, 2025, the Nifty 50 index and India VIX have gone against the historical inverse correlation, with Nifty 50 index down around 3.5 percent, at a time when India VIX too has shed around 12 percent.

Traditionally, as India VIX - the volatility gauge - rises, the Nifty 50 index often declines, and vice versa, with higher VIX signalling greater uncertainty, thus leading to a fall in the value of the benchmark.

Technical expert Dinesh Nagpal said the India VIX may no longer be as relevant as before, with traders and investors now focusing more on the weekly index options.

Nagpal added that given the focus on weekly options, the price fluctuations in monthly OTM options have become low. Hence, India VIX, which depends on these monthly options, might not reflect the actual market volatility as effectively as it used to.

Another chartist, Preeti Chabra, Founder at Trade Delta said that the recent leg of market downturn since February 19, 2025 has been unusually slow, leading to a decline in India VIX too.

One possible reason for the subdued VIX, Chabra said, is the lack of abrupt spikes in put option prices.

"…ITM put options are trading at a discount with little to no premium, while certain strikes exhibit unusually high premiums. This erratic pricing behaviour in both premiums and VIX suggests an unusual market dynamic, defying conventional correlations between market declines and volatility spikes," Preeti Chabra said.

Nirav Karkera of Fisdom said there could be some sort of causal relationship between the Nifty 50 and India VIX, but it may not necessarily be co-related. Karkera added that when market has a mixed sentiment, the relationship may not hold as expected.

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