Softening volatility index signals market confidence: analysts

VIX has fallen by about 19% in the last five days signalling returning confidence in the market

India VIX, the National Stock Exchange’s volatility gauge, fell for a fifth day on Wednesday as markets strengthened after buying by foreign investors picked up, on the back of the government announcing a rise in gas prices and freeing of diesel from price control.

On Wednesday, India VIX closed at 13.03, down 2.5 per cent, the lowest level since the month’s beginning. The index has fallen about 19 per cent in five days, signalling a return of confidence.

“The fear that the market might fall sharply is subsiding. While we are not completely out of the woods, the (benchmark) Nifty reclaiming the 8,000-zone has given some confidence to the market. We do not expect the market to fall below the 7,800 levels before the expiry,” said Hemant Nahata, senior research analyst, IIFL.

The NSE Nifty on Wednesday settled at 7,995, adding 0.9 per cent after touching a day’s high of 8,005. The BSE exchange's Sensex benchmark closed up 0.8 per cent at 26,787.  Foreign investors have net-bought equities worth close to $13 billion so far this year.

Analysts said the VIX could dip further, as sentiment in the market has turned positive after the Modi government's weekend announcement on gas prices and the freeing of diesel.

“The recent recovery has eliminated the negative bias. The benchmark CNX Nifty decisively closed above 7,950 on Wednesday, just before Diwali. We believe this positivity would extend in the days to come,” said Jayant Manglik, president, retail distribution, Religare Securities.

Experts believe till the expiry of the derivatives segment next week, the markets would continue to be resilient.