The fear gauge India VIX has fallen to a record low of 9.5, indicating that trades foresee low volatility going ahead, therefore reducing the probability of sharp near-term swings. This also implies that the market is likely to see directionless trade going forward.
The India VIX is a key indicator of market risk, which clues investors and traders into the level of uncertainty in the markets. When traders aim to calculate the expected volatility of Nifty indicated via Options, they utilise the value of India VIX. Typically, the India VIX hovering in the 9-12 range indicates a period of low fear and volatility being priced into trades.
Usually, a lower VIX level signals an upmove, Shubham Agarwal, CEO & Head of Research at Quantsapp had noted. "A falling India VIX can be used to set an expectation of a rise. On the other hand, rising India VIX can be used to expect a fall," he said. In the chart below, the India VIX index is denoted in green, while the Nifty 50 index is shown in yellow.
For the past month, India VIX has been hovering around the 10 zone, close to its all-time low, which has offered reassurance to bullish sentiment, according to analysts. This also is a reflection that market participants are not seeing any immediate macro or domestic triggers that could disturb market stability over the next few weeks. With no major event risk being priced in for the coming 30 days, traders appear comfortable maintaining exposure within a defined range.
"As long as volatility remains compressed and the index holds above 25,800, a gradual recovery is likely to persist, with a selective buy-on-declines approach remaining relevant," said analysts at SAMCO Securities.
Usually, when the markets have enough triggers to move the indices in either direction, the VIX rises to hover between the 12-15 band. Therefore, the current readings of the fear gauge signal that the market that is calm, but also waiting for fresh cues to dictate its next move.
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