India VIX signals caution, but don't panic just yet, say analysts

The India VIX Index shot up nearly 9 per cent to finish at 19.82 amid market sell-off. A gauge for volatility, the gauge signals caution among investors. But there are no signs of panic just yet, observe analysts.

The latest reading is well below this year’s average of 20.7. Moreover, Monday’s 8.8 per cent advance is only the 10th largest seen this year.

The India VIX Index can be a lead indicator for market sell-off. For instance, it had shot up to 32 on February 24, ahead of a 7 per cent fall in the Nifty in less than two weeks.

Similarly, in May, the index touched almost 26. In the next three weeks, the Nifty plunged 8 per cent to touch 2022 lows of 15,293 on June 17.

Notwithstanding the US Federal Reserve’s stance on rate hikes, the index has stayed below 20.

Experts say the market is sanguine because of positive foreign portfolio investor (FPI) flows. So far this month, FPIs have infused close to ~50,000 crore into domestic stocks.

Any sign of a sharp reversal in inflows could spook markets.

“The Nifty, which had entered an overbought zone, is now broadly retracing the 2,800-point rally we saw in the past two months. If we see an overseas investor sell-off, for the immediate term, the retracement could extend till 16,900, where the 200 day-moving average and gap-up support zones are placed. At the current juncture, we may see excessive volatility,” says Abhilash Pagaria, head-alternative and quantitative research, Edelweiss Securities.