India VIX Crashes Over 50%: What Does It Mean for Traders and Investors?

A Roller Coaster Week for Indian Equity Markets

Last week was none less than a roller coaster ride for the Indian equity markets. On June 3, the BSE Sensex and the NSE Nifty 50 gained more than 3%, recording their largest single-day gain in three years and closing at record highs. This surge came after exit polls indicated the return of Prime Minister Narendra Modi to power for the third straight term with a thumping majority. This optimism led to a total gain of over Rs 11 lakh crore in investors’ wealth.

The Highs: Exit Polls Boost Market Confidence

The markets reacted positively to the exit polls, as investors anticipated continuity in the Modi government’s policies, which had been seen as market-friendly. The expectation of a stable government bolstered investor sentiment, resulting in a historic rise in stock indices.

The Lows: Election Day Surprise

However, the euphoria was short-lived. On June 4, the very next day, things took an ugly turn on the voting day. The benchmark stock indices crashed by 6%, marking the sharpest single-day fall in nearly four years. The counting trends showed that the exit polls had not aligned with the actual results, leading to a surge in uncertainty about the continuation of policies by the Modi 2.0 government. Speculation was rife regarding the leadership of the government as they needed support from other parties as well.

Volatility Spikes: Fear Index Soars

With uncertainty in the air, the volatility gauge India VIX, also known as the Fear Index, surged past the level of 31 and closed up by 28%. This spike indicated heightened market fears and uncertainty among investors.

Market Rebounds: Clarity and Stability Return

As clarity emerged regarding the leadership of the NDA, the domestic market rebounded and hit a fresh all-time high. With uncertainty out of the way after Prime Minister Narendra Modi took oath for the third term, the volatility gauge slipped to a one-month low of 15. 

The Dramatic Decline of India VIX

In just five trading sessions, the India VIX dropped from a high of 31.71 on June 4 to below the 15-mark on June 11, 2024. This dramatic decline indicated that the market fears had subsided significantly. With the fall in volatility, it became evident that the fear among market participants had diminished.

Conclusion: A Week of Market Whiplash

The past week has been a testament to the volatility and unpredictability of the stock market. From historic highs driven by election optimism to sudden crashes due to political uncertainty, the Indian equity markets experienced extreme fluctuations. As stability returned with the confirmation of Modi’s third term, the markets have once again settled, demonstrating the ever-changing nature of investor sentiment and market dynamics.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.