Dalal Street witnessed a steep rise in volatility on February 24 as the invasion of Ukraine by Russia, the third largest oil producer and second largest natural gas producer, spooked market participants. The volatility gauge, India VIX, surged more than 30 percent in a single day.
That apart, it was the last day of futures & options contracts for February series, which kept the traders on tenterhooks, thus adding to volatility.
India VIX, which is also called fear index that measures expected volatility in the market, jumped up to 33.97 intraday before settling at 31.98, the highest closing level since June 17, 2020, up 30.31 percent over previous close.
In the last few sessions, the gauge has been above 20 levels, suggesting that the bears were dominant but climbing above 30-mark is a clear indication that they have a strong upper hand at Dalal Street.
During March 2020, India VIX went as high as 86.6 before cooling off. It went above 30-mark for the first time on March 9, 2020 (when Nifty was at 10,450). Nifty made a low on March 24, 2020 (7,511). It took five months for India VIX to come back to 18 level, which is the last five-year average) and in the same period the Nifty rose 50 percent from the lows.
Given the geopolitical tensions (conflict between Ukraine and Russia), and the rising risk of higher oil prices, the volatility is expected to remain high but technically if it falls and stays below 29-mark then there could be some stability in the market.
There was a knee-jerk reaction in the market as the Nifty50 fell more than 800 points to 16,248, the lowest level since September 2, 2021, as every sector got butchered in the crash.
"On the volatility index, 30 seems to be the crucial level and if this index consistently sustains above 30 for next couple of trading sessions then Nifty shall come under more downside pressure. In case, if this index remains below 29 in next two sessions then that may hint at market reaching some sort of stability," says Mazhar Mohammad, Founder & Chief Market Strategist at Chartviewindia.
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Going by past instances, Deepak Jasani, Head of Retail Research at HDFC Securities says VIX may have some more to rise and hence Nifty may not have made a bottom today.
The Nifty50 plunged 12.6 percent from its record high of 18,604 on October 19, 2021. It was way below its 200-day exponential moving average (16,888). If the index decisively breaks 16,000-15,900 levels due to Ukraine-Russia war and rising oil prices, then further steep fall up to 15,500 can't be ruled out but generally in such situation the trend remains unpredictable, experts feel.
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"The 200 SMA & DEMA both got irrelevant to provide any kind of relief in the market as the benchmark index retained the lower grounds since the opening tick. The way the market fell like a bottomless pit, it has certainly dented the sentiments across the participants," says Osho Krishan, Senior Analyst - Technical & Derivative Research at Angel One.
As far as levels are concerned, Krishan feels there is no immediate support visible before 16,000 – 15,900 levels. "And if things worsen, we may see lower levels than this as well. On the higher side now, 16,600 – 16,800 has now become a sturdy wall and till the time, we do not reclaim these levels with some authority, it would certainly be challenging times for markets. This is possible in the near term only if tension eases off with respect to Russia and Ukraine."
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Looking at the market scenarios and the volatility index, it is advisable to stay cautious and avoid any aggressive bets for the time being, but one can infer the situation as an opportunity for investments in selective counters in a staggered manner and not hurry for the ultimate bottom hunting, Osho says.
Bears tightened their grip over broader space as the Nifty Midcap and Smallcap indices corrected around 6 percent each.
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