Comparing Indian Stock Market Turbulence: India's VIX Resonates with 2019 Pre-Election Uncertainty, Yet with a Twist | NSE | BSE | Stock Exchange |

 

India's stock market is feeling nervous right now. The VIX, which measures how much the market might jump up and down, is acting like it did before the 2019 election. The VIX (Volatility Index) is also known as the 'fear gauge', and it's gone above 20. This means investors expect the market to be very shaky.

Experts say that the recent increase in market worry is similar to what happened in 2019. Back then, just before the election results, the markets were at their highest point in March, and the VIX, which shows market volatility, went up to 28.6.

But this time, there's a difference. Before the 2019 elections, the VIX stayed between 20 and 14 for six months. Anand James, who's a top market expert at Geojit Financial Services, said this showed that the market was consistently volatile for a long time. But now, the VIX went up quickly.

James explained, "In contrast, the VIX went from very low to above 20 in just two weeks."

Looking back at history, it seems like the VIX might keep going up, making the market more volatile. But James thinks that because the VIX went up so fast this time, it might calm down before the election results come out.

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Understanding Implied Volatility During Lok Sabha Elections

Besides the VIX (Volatility Index), there's another measure called Implied Volatility. While the VIX shows how much the entire Indian stock market might swing, Implied Volatility focuses on a single stock or option contract. It tells us what the market thinks about how much that particular stock or option might change in price in the future.

According to a recent report by Reuters, the implied volatility of a put option, which is a kind of financial contract, was around 18-20 percent on the National Stock Exchange. This put option has a strike price set 10 percent lower than the current level of the Nifty 50 Index.

In comparison, during the same period in 2019, the implied volatility was higher, around 28-30 percent. This suggests that investors had to pay more back than to protect themselves against unexpected events or Voting result.

Implied volatility is an important factor in pricing options. A lower implied volatility number means investors feel more confident about what might happen.

Vikas Pershad, who works at M&G Investments as an Asian equities portfolio manager, said, "I think there’s a high level of confidence that there will be stability in the Prime Minister’s office after the results are announced." He also mentioned, "The low volatility... shows that people are not so worried about the results this time. It’s the least risky event we've seen in 20 years.

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What is VIX?

VIX, also known as the Volatility Index, is like a tool that tries to predict how bumpy the stock market might be in the next 30 days. It's a bit like a weather forecast but for investors. When the VIX is high, it means investors think the market will be very up and down. When it's low, they expect things to be more stable.

On Monday, the VIX shot up to its highest point in a year, reaching 21. This suggests that the market is expected to be very volatile. In May, the Sensex, which is a measure of the Indian stock market, has also dropped by over 3,000 points or 4 percent, compared to April 30.

Market experts have different opinions about what this volatility means. Some think it's reasonable to be worried, especially with the elections coming up and possible changes in government policies. Others say the sudden increase in the VIX might just be a temporary reaction, and things could settle down soon.

Addressing concerns about the stock market, Home Minister and senior BJP leader Amit Shah said in a recent interview with NDTV, "The market has fallen more in the past. So, linking market movements directly to elections isn't smart. Maybe the fall was because of some rumors. In my opinion, buy before June 4. The market is going to go up."

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Related Link:

https://economictimes.indiatimes.com/markets/stocks/news/why-lok-sabha-election-is-a-non-event-for-stock-market-investors/articleshow/108870950.cms?from=mdr