VIX hovers near lows despite Brexit

Despite Britain’s vote to exit (Brexit) from the European Union, the stock volatility index here as measured by India VIX, has seen a steady decline.

The gauge, which measures investors’ perception about the risk of sharp swings in the market, has been around 15 for almost a month, even as the benchmark Nifty on the National Stock Exchange has surged. A VIX value below 20 indicates there is unlikely to be sharp swings in the market and a value above 30 hints at volatile moves.

The gauge has been mostly fluctuating between 13 and 24 in the past two years. The historic peak was 85.13 on November 17, 2008, in the aftermath of the collapse of Lehman Brothers in the US.

“Low VIX indicates no major concerns and market participants are comfortable with using declines as buying opportunities,” said Chandan Taparia, derivatives analyst at Anand Rathi Financial Services.

 

India VIX has been mirroring the CBOE Volatility Index, which rose briefly after Brexit to 25 but subsequently declined to around 13.

“All resistances are working as supports and any small positive news is moving the market forward. Sustained put writing is being witnessed in the Nifty, indicating a bullish trend,” said Taparia. Call writing has shifted to 8,600-8,700, from 8,400 levels the previous month.

Earnings growth, progress of the monsoon and pace of legislation in the monsoon session of Parliament will drive the markets from here. The race for the Reserve Bank governor’s post will be another. “The traction in Indian equities continues to be aided by the rally in global equities as the risk of rise in interest rates in developed markets recede,” said Yogesh Mehta, vice-president, Motilal Oswal Securities.

Foreign institutional investors (FIIs) are back with liquidity and have been buying in both the cash and futures and options segment, said Taparia. FIIs have bought shares worth Rs 2,100 crore in July, taking their total purchase to Rs 21,393 crore in the year till date.

The S&P BSE Mid-cap and the Nifty Mid-cap 100 indices hit their lifetime highs in intra-day trade on Monday. On Tuesday, the benchmark indices posted their biggest single-day gain since May 25, with the Sensex posting its highest close since August 2015.

“We are now marginally away from the 8,600 mark in the Nifty. So, the possibility of profit taking is high and traders should prepare themselves for a volatile session,” cautioned Jayant Manglik, president, retail distribution, Religare Securities.