India VIX: Market volatility may rise ahead of election results, gains capped over priced-in stability; here’s why

The market’s fear gauge — ‘India VIX’— which indicates how much the Nifty 50 index is expected to change in the next 30 days — has had some intriguing movements in April 2024 ahead of the high-stakes Lok Sabha elections 2024. 

The indicator of near-term market volatility based on the prices of derivative option contracts, typically cools off after key political events conclude. The index however, had already swung lower in March before voting began.

Market analysts reckon that the volatility index may rise just ahead of the election outcome. However, the increase may remain capped as the market has already priced in the stability. A significant drop in the volatility index indicates that participants are confident about the near-term market trajectory.

“Historically, India VIX tends to ascend preceding the election, fuelled by anticipation of uncertainty and significant market shifts. However, it typically experiences a sharp decline post-election once the outcome is determined,” said Santosh Meena, Head of Research, Swastika Investmart Ltd.

What’s behind India VIX’s 20% plunge?

In an unexpected turn, India VIX plummeted over 20 per cent on April 23, coinciding with the voting period, marking the most substantial single-day drop since the conclusion of the 2019 election–the sharpest fall in five years. 

 “Theoretically VIX depicts the volatility expectation for the next 30 calendar days. So, lower the VIX the more confident, the traders are about the ongoing upswing. Option traders also react to such scenarios by reducing expectation of premium expansion,” said Anand James, Chief Market Strategist, Geojit Financial Services.

This year’s surge so far in Indian markets was fuelled by a combination of both domestic and global factors. According to, the India VIX index declined 2.96 per cent in February, 17.60 per cent in March, and rose 0.29 per cent in April. So far in 2024, India VIX is down 11.25 per cent.

“The fall in the VIX gives massive comfort to the bulls,” said Om Mehra, a technical analyst at Mumbai-based Samco Securities, who expects the benchmark Nifty 50 Index of equities to hold its level through the election.

Volatility to remain capped ahead of election results

Market experts say it is noteworthy that India’s VIX is now rebounding sharply from its historical low of 10. The recent surge in India’s VIX, coupled with the market rally, suggests that investors are positioning themselves on the long side while also hedging their positions. Typically, India’s VIX rises when there are significant buying options, according to Meena.

“Presently, we’re observing a trend of increased buying in call options to capitalise on bullish positions, alongside purchasing put options to hedge portfolios. Consequently, this surge in options activity is contributing to the rise in India VIX. The index will probably continue to climb as we approach the election outcome, but the extent of its increase may be limited due to a certain level of certainty prevailing in the market,” said the analyst. 

On the 20 per cent crash, Meena said that the notable downturn suggests that market may already be pricing in a BJP victory, indicating that a major post-election move might not be anticipated. Currently, the VIX level is 12.87.

In previous election cycles, India VIX reached levels of 40 and 30 in 2014 and 2019, respectively. However, this time, given the existing market dynamics and perceived stability, the rise in India VIX may not reach such elevated levels, said analysts. The gauge fell 20 per cent after the results of the general elections in 2014 and 2019 were announced. The volatility index typically experiences a sharp decline post-election once the outcome is determined.

Still, some market participants say investors should watch if the fear gauge sustains near its record-low level for a confirmation that volatility will stay subdued. With the next leg of the election due on May 7, most polling surveys indicate that Prime Minister Narendra Modi-led Bharatiya Janata Party (BJP) and its allies will win a third straight term. Votes will be counted on June 4.

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