Volatility Index: India VIX falls to 15-month low on no sharp market swings

Mumbai: Volatility Index or India VIX-the fear gauge of the Indian stock market-has dropped to its lowest level in 15 months, as the absence of sharp swings of late, a decline in US volatility, and falling derivatives options volumes have eased risk sentiment. The India VIX remained flat and ended at 11.2 on Thursday. The benchmark Nifty 50 index fell 100.60 points or 0.40% to close at 25,111.

“Indian markets are currently mirroring the US VIX, which is at a 7-8 month low, offering some relief to traders globally,” said Ajit Mishra, senior vice-president, research, Religare Broking. “With limited domestic triggers and much of the earnings season already priced in, the index remains subdued.”

Since the start of July, Nifty has traded in a narrow 25,000-25,500 range, failing to break out in the absence of triggers. India VIX is a volatility index based on Nifty option prices. It uses the best bid-ask prices of Nifty options to calculate expected market volatility over the next 30 days. The index typically rises when traders expect bigger market swings and falls when markets appear stable.

In the last month, India VIX is down almost 22%, whereas the benchmark Nifty 50 has edged up 1%. The Chicago Board Options Exchange’s CBOE Volatility Index, which measures volatility based on US S&P 500 index options, is also down 19.7% over the past month. The drop in VIX could also be on account of a fall in trader participation in Nifty options.

“At first glance, this may seem like a sign of market confidence, but the reality points to suppressed hedging activity and reduced participation,” said Dhupesh Dhameja, derivatives analyst, Samco Securities. “Traders have largely avoided buying deep out-of-the-money puts, keeping option premiums subdued and implied volatility low.” Dhameja said reduced activity of global liquidity providers like Jane Street has led to lower derivative volumes and thinner option market depth, especially in far out-of-the-money contracts, which typically reflect macro risk sentiment.

India’s VIX may not fully reflect what is happening across the market, as it tracks only the benchmark Nifty 50 and its large-cap constituents. “The market appears calm on surface, but history suggests that such low-volatility phases are often followed by sharp directional moves,” said Dhameja. He said that for now, the trend may stay range-bound, but any spike in VIX could be a “signal worth watching closely.”