Volatility surges, India VIX spikes 16% as market plunges


India VIX, a measure of the volatility in the equity market, zoomed 16.25 percent from 19.78 to 22.99 levels on April 21, as surging COVID-19 cases and lockdown worries sent the market tumbling.

“The spike in VIX indicates that market participants expect volatility to increase in the next one month,” Abhishek Chinchalkar, CMT Charterholder and Head of Education at FYERS said.

The increase is the biggest single-day spike since February 26, 2021 when India VIX gained more than 20 percent. Typically, the market rises whenever the index, which is an indicator of investors’ perception of volatility for the next 30 days, falls. The higher the value, the higher is the volatility.

“According to historical records, India VIX peaked a few days before the Nifty50 hit bottom. Similar when the market is about to fall, the VIX, has been observed to start rising and bottoming out. Investors must understand how to read India VIX and the degree of complacency or uncertainty it represents,” Ashis Biswas, Head of Technical Research at CapitalVia Global Research said.

A below 20 level is considered the bottom, whereas a range of more than 24 is usually considered a pick as per the historical data, he added.

The spike in volatility from lower zones has again made it difficult for the bulls to hold their key levels, Chandan Taparia of Motilal Oswal said.

The BSE Sensex posted its second-biggest single-day fall in 2021, plunging 1,707.94 points, or 3.4 percent, to 47,883.38, while the Nifty50 declined 524.10 points, or 3.53 percent, to close at 14,310.80.

Technically, 14,250 is a critical support to watch out for the Nifty in the short term. “A closing below this support would expose the index for further correction towards 13,900-13,600,” Abhishek Chinchalkar said.