India VIX surge due to global issues, still within normal range: Ajay Bagga
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, Market Expert, says India's VIX has risen to 18, influenced by global uncertainties , but remains within a normal range of 10 to 19. Historically, the VIX surged much higher during crises like Covid-19 and the Global Financial Crisis. While not indicating a specific market direction, it serves as a fear gauge, typically increasing with market anxieties, with levels above 20 warranting caution.It is mostly global factors. If you look at India VIX at about 18, what that really means on an annualised basis over the next 30 days, you could get an 18% movement. It is showing the standard deviation, the square root of the variance. There are formulas for calculating. It shows the forward-looking volatility can be expected in the market. So, it is more the global issues and we do not have to worry as at 18 level, we are within the range. It is not something very highOn March 24, 2020, with Covid uncertainties and selloff in the market, the India VIX was at 86. At the height of the Global Financial Crisis in 2008, it was at 85. On the day of the Ukraine war starting, February 2022, it was at 37. So, 18 is just showing you yes, it has heightened. With respect to a normal range, we see anything from 10 to 19 as normal. Above 20, there's a little bit of concern and in the 30s you say volatility has become very high and expect very volatile returns and we could see sharp drawdowns and sharp rises.Theoretically, 18 is not giving a directional move. Practically we have seen that this number mostly goes up when there is too much fear in the market. We take it more as a fear gauge, it is not a happiness gauge ever. So, theoretically it does not give a direction to the market.No, not at all. I would see this market as a very strong buy-on=dips market. Mutual funds are sitting with a huge cash pile. Any dips are getting bought into. The retail investors have a very high level of confidence. FPI flows have been very volatile. L last week, one day, it was minus 500, and then we saw a plus 1000, and then a minus 10,000; next day we saw plus 2000, again the next day minus 5,000. So, there is a lot of volatility in the FPI flows and these kinds of outflows are generating this volatility.So, basically, what it is showing is that the market anticipates that the journey will not be very smooth. But the second very big part of what the market has really shown us is that there are dip buyers who come in whenever the market reaches X levels and slowly the range of the market has been moving up. So, we look out for higher lows and higher highs and slowly the markets consolidate.On an 8-month basis, we are still about 5% away from September 24 high. It is not that we have given very great returns or markets have really run off, but they have had a chance to consolidate and normally, a down market lasts about 12 months in India on an average. It could be longer as we saw on a dotcom bubble or something or even GFC did not last more than about 14 months. So, we are getting near that. It is a well-known, well transmitted number which market players understand and now as the global risk off reduces, we could see a surge back in India, but all depends on the Trump policy, the fallout from that is the Japanese bond yields.
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