India VIX cools down by 24% in 3 days, bulls get into comfort zone post Union Budget

India VIX Under Pressure post Budget

Bulls have seen a sigh of relief after the consistent sharp fall in India VIX, the volatility index that measures expected market volatility, following the release of the Union Budget — the much-awaited event that made the bulls cautious in the past several days.

On the budget day, February 1, the India VIX ended at 14.10, the lowest closing level since January 3, falling 13.25 percent (the biggest single-day fall since August 7, 2024). It has consistently been falling since January 30, reporting a 24 percent decline over three consecutive sessions.

The VIX also dropped below all short-, medium-, and long-term moving averages in just three days, which is another positive factor for the market. Generally, experts feel that as long as the VIX sustains below the 14 mark, the bulls may find themselves in a comfort zone.

VIX, known as the "fear factor," measures expected volatility over the next 30 days. It is calculated using an option-based theory and current option market data. Usually, before any major event like the Union Budget, RBI Policy, Fed Policy, or Union Elections, VIX measured by India VIX tends to increase. As the event concludes, VIX typically falls, as happened today.

"India VIX dropped over 13 percent today, leading to a massive erosion of option premiums, benefiting option sellers. The most benefit was for traders who sold straddles and strangles, as there was not much delta movement with VIX dropping in their favour," Preeti K. Chhabra, Founder of Trade Delta, said.

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As a result, the Nifty 50 saw a nice recovery from the day's low before ending the session at 23,482, down just 13 points after witnessing a 300-point range during the day. The index snapped a four-day winning streak while rallying 850 points from the week's low before ending the week 1.75 percent higher, forming a long bullish candle that engulfed the previous two-week candles.

Experts believe it is a balanced budget with a focus on fiscal prudence and economic expansion. The changes in personal income tax also provided good support to the consumption sector, which had slowed down last year.

"The Union Budget 2025-26 presents a balanced approach between growth-driven initiatives and fiscal prudence, making it a critical factor in determining foreign institutional investor (FII) flows in the coming months," Sonam Srivastava, Founder and Fund Manager at Wright Research PMS, said.

Also read: Meets the Mark, But Misses the Magic: The Budget 2025 Big Picture

According to her, measures such as the increase in the Foreign Direct Investment (FDI) cap in the insurance sector, the rationalization of customs duties to boost domestic manufacturing, and tax incentives for strategic industries, including technology, renewable energy, and defence, indicate a clear push toward long-term economic stability.

Anirudh Garg, Partner and Fund Manager at Invasset PMS, believes the Union Budget 2025 has introduced several tax reforms and sector-specific initiatives that are likely to shape market sentiment and economic growth.

The decision to forgo Rs 1 lakh crore in direct taxes and offer full tax exemption up to Rs 12 lakh in income under the new regime is expected to boost consumer spending, benefiting sectors such as FMCG, automobiles, and retail. The middle class and salaried professionals will have more disposable income, driving demand in these areas, Garg said.

Nifty FMCG, Realty, Consumer Durables, and Auto indices were the star performers amid a volatile session, especially after the change in direct taxes in the budget, rising by 2-3 percent.

The Nifty Bank saw a 1,100-point trading range on Saturday, hitting 50,000 and 48,925 levels during the day. The index recovered nearly 600 points from the day's low before closing at 49,507, down 0.16 percent.

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