India VIX | Panic ensued in the share market on Monday, and in response to China’s reciprocal tariffs, stock markets around the world faltered. The Indian markets also saw a sharp decline, with the Sensex and Nifty closing down by 3% each. The Nifty showed a drop of 1,100 points, reaching a day low of 21,744. However, some recovery was seen by the time of Nifty’s closing, and it ended at a level of 22,162, down by 743 points.
The market experienced turmoil throughout the day, and the volatility index India VIX surged by 65% in a single day, reaching 22.79. This is a serious signal for the market. In this volatility, no movement in the market can be considered stable.
The Volatility Index (India VIX) surged by over 65% on Monday, reaching a level of 22.79, marking one of the largest single-day increases in recent years.
India VIX rose when the Indian markets opened significantly lower under the impact of weakness in global markets on Monday. Panic selling continued and India VIX kept rising. The hints of a downturn in the U.S. markets have now reached India. Sensex and Nifty are down 17% from their all-time high levels. If this decline continues in the coming days, a bear market will also begin in India.
All sectors closed deeply in the red. Nifty Metal fell by 8%, Nifty IT declined by over 7%, while Auto, Realty, and Oil and Gas saw a drop of more than 5%. The small-cap and mid-cap indices experienced a decline of 10% and 7.3% respectively.
The global market is under pressure. The Nasdaq has officially entered a bear market with a 20% decline. The Japanese, Chinese, and European markets are also under heavy selling pressure.
India VIX is based on the Black-Scholes model
The India VIX (India Volatility Index) is an index that measures the expected volatility of the Nifty 50 in the Indian stock market. It is also referred to as the “Fear Index,” as it reflects the uncertainty and fear among investors. For instance, on this Monday, as there was a significant decline in the market, fear of further downturn spread among investors, leading to increased selling. Consequently, the India VIX also rose.
India is based on the Black-Scholes Model. The higher its value, the greater the expected volatility in the market.
How is India VIX calculated?
The India VIX is calculated based on the prices of Nifty 50 option contracts (specifically near-month and next-month options). This process is complex but let us understand it in simpler terms.
The India VIX is calculated from option price data. The prices of Nifty 50 put and call options are used to calculate the India VIX.
Implied Volatility
The price of options is used to estimate the expected volatility in Nifty 50 over the next 30 days. This is referred to as “implied volatility.” It is also known by the name of IV.
The Black-Scholes model is used to incorporate various strike prices and option prices into a formula. It includes factors such as interest rate, time to expiry, and market conditions.
Along with this, a percentage value is derived by combining all the data, which is expressed as India VIX. For example, if the India VIX is 20, it means that an annual volatility of ±20% is expected in Nifty 50 over the next 30 days.
What difference does an increase in India VIX make?
When the India VIX rises, it indicates that expectations of uncertainty and volatility in the market are increasing. People are feeling uneasy in the market. There may be a sharp spike in market movement.
The high India VIX indicates that investors are fearful of significant volatility in the market. This may reduce their willingness to take risks.
Generally, an increase in India VIX is observed to coincide with a decline in indices such as Nifty 50, as investors gravitate towards safer investments like gold or bonds.
An increase in VIX leads to higher premium prices for put and call options, as volatility is expected to rise. The sharp decline on Monday caused put side option premiums to increase by up to 5000%.
Factors Affecting the Rise of India VIX
India VIX is influenced by various economic, political, and global factors. These factors play a crucial role in its increase, such as..
Economic events such as economic uncertainty, poor GDP data, rising inflation, or changes in interest rates increase uncertainty in the market.
Political events also influence India VIX, as elections, policy changes, or geopolitical tensions can create fear in the market.
