India VIX Plummets by Over 20% Following Exit Poll Results

Market Surge Following Exit Polls

On the heels of exit polls predicting a landslide victory for the NDA, the Indian stock markets opened at record highs. Both the Nifty 50 and Sensex surged nearly 3%, reaching record highs of 23,338.70 and 76,738.89, respectively. The market’s strong performance reflects investor optimism spurred by the anticipated political stability and continuity in economic policies.

India VIX Crash

The India VIX, commonly known as the fear index, experienced a dramatic drop of over 20% today, significantly reducing the market uncertainty caused by the upcoming elections. Currently, the VIX is trading at 19.6050, marking a 25.23% decline from its 52-week high of 26.1950 recorded on May 27, 2024.

This scenario mirrors the 2019 election period, where the VIX initially surged in anticipation of the elections and then cooled off significantly after the NDA was democratically elected.

India VIX trend during current elections

India VIX trend during 2019 elections

The recent exit poll results, predicting a decisive victory for the NDA with approximately 360 seats, have alleviated the pre-election jitters that previously caused the VIX to spike by 165%. With the VIX now trading below its 20-day moving average, there is a clear indication of reduced market volatility and diminished investor anxiety.

Sectoral Indices Performance

All major sectoral indices are in the green, reflecting broad-based market optimism. Nifty PSU Bank, Nifty Oil and Gas, and Nifty Infra were the top gainers, each rising by 6.45%, 5.44%, and 4.91%, respectively. Meanwhile, Nifty Pharma and Nifty IT saw more modest gains, with both indices increasing by 0.8% and 0.61%, respectively. The broader market also performed well, with the BSE Midcap gaining nearly 2.98% and the BSE Smallcap rising by 2.48%.

Impact on Options Market

The significant drop in the India VIX has a pronounced impact on the options market, primarily through reduced implied volatility (IV). Reduced volatility typically leads to an “IV crash,” which affects the pricing of options. As implied volatility decreases, the premiums on options contracts tend to drop, making options cheaper. The significant drop in the Vix, also known as implied volatility (IV), has a direct impact on the pricing of options contracts. This can be an attractive proposition for investors seeking to hedge their existing holdings or for those looking to initiate new option positions with a reduced upfront cost.

The IV crash also implies a less volatile market outlook, which can reduce the potential for large swings in options prices. Traders who thrive on volatility might find fewer opportunities, whereas those who prefer stable market conditions might benefit from this environment.

Conclusion

Favourable exit poll results combined with reduced market volatility suggest a shift towards a more stable and less uncertain market environment. Investors should closely monitor these developments as the election results are about to be announced.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. The information is based on various secondary sources on the internet and is subject to change. Please consult with a financial expert before making investment decisions.