Volatility to rise in the coming 12 months as markets contend with 'binary events', says Ridham Desai

Ridham Desai, managing director, Morgan Stanley

With several imponderables on the horizon over the next 12 months, the market will see a rise in volatility, Ridham Desai, managing director, Morgan Stanley, has said in an exclusive interview to Moneycontrol. The fact that the market is currently witnessing very low volatility sets the stage for rising volatility in the months to come, he said.

“I do detect rising volatility in the coming 12 months. If not for anything, just the starting point of volatility is so low that it is bound to undergo some reversion,” he said.  The full video interview will be published on the Moneycontrol website on November 28.

Currently, the India VIX, the widely accepted measure of volatility, is hovering close to the lowest level, at around 11, since the index was formed in July 2010.

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“We have large number of events with binary outcomes lined up. And when there are binary outcomes, the market will invariably produce more volatility. I think investors should come with a long-term mindset. If you don't come with a long-term mindset, then there's going to be a lot of difficulty, but if you do, then you will be okay in the long run, even amidst this volatility,” he said. “I wouldn't worry too much about this, but you have to structure your portfolio in order to overcome any risk of major drawdowns that could come along the way and there will be plenty of them.”

Among the significant risks for the year, which pose binary outcomes, Desai identified the 2024 general election as the most critical event. “My base case is that the market will trade a continuity in government and then decide what to do about the actual result after that,” he said.

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Crude oil prices and the US Federal Reserve’s rate decision were the other risks counted by Desai.

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