India VIX jumps over 20% amid Ukraine-Russia tensions, experts expect higher volatility to stay

Stock market volatility increased significantly on February 14 for reasons including tensions between Russia and Ukraine that translated into oil supply concerns, taking crude prices to a more than seven-year high and rising expectations of aggressive rate hikes by the US Fed to fight inflation.

India VIX, which measures expected volatility in the equity market, jumped to 22.72 on February 14, the highest level since January 27, when it was at an intraday high of 23.86.

The volatility index was 22.53 on the NSE at 14:28 hours IST, up 20.58 percent over the close of 18.68 February 11.

Generally, volatility rises with the increasing uncertainty in the equity markets and when it subsides, the market turns stable, supporting the bulls over the bears.

"The volatility has gone up with an increase in uncertainty over tensions between Russia and Ukraine. The market is under downward pressure due to the looming threat of war. It is likely to have a short-term impact since the risk of an actual, elongated war between two nuclear powers is quite limited," said Mohit Ralhan, Managing Partner at TIW Capital Group.

It is expected that the tensions will dissipate through geopolitical manoeuvres over the next few weeks, but volatility will be high during this period, he said.

Selling was across the board. The Nifty50 broke below the crucial 17,000-16,900 levels, falling nearly 500 points to 16,885 while the BSE Sensex fell more than 1,600 points to 56,536 at 14:33 hours IST.

The broader markets were hit hard, falling more than the benchmarks. The Nifty Midcap 100 and Smallcap 100 indices were down 3.4 percent and 3.8 percent respectively.

Nifty Metal was the biggest loser among sectors, declining more than 4.5 percent, followed by the Bank, Auto and Financial Services indices that fell nearly 4 percent each. Fast Moving Consumer Goods declined nearly 3 percent while Pharma and Information Technology, the so-called defensives, corrected over 1 percent each.

Brent crude futures, the international benchmark for oil prices, climbed to $96.16 a barrel on Monday, the highest level since October 2014, following supply concerns amid rising Ukraine-Russia tensions. However, it wiped out those gains and was trading lower at $94.21, down 0.24 percent at the time of publication of this story.

Experts said volatility is expected to remain high in the coming days given the global concerns, but investors should not be worried by short-term worries and to pick quality stocks for the long term.

"We believe the current fall in the market is due to Ukraine crisis and we may witness a strong rebound in markets after easing of Ukraine Crisis," said Mohit Nigam, Head-PMS, Hem Securities.

He advised investors not to jump into the market for short-term gains; they should adopt a long-term horizon and add quality stocks in such significant dips.

VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, also advised a similar approach. Long-term investors can ignore short-term gyrations can buy high-quality financials and IT stocks now, he said.

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