VIX remains high despite five days of market rally; investors concerned over global risks

The Indian stock market is witnessing a continuous streak of five days of gains, but the Volatility Index (VIX) remains around 15 points, indicating that investors are not yet completely complacent. This 'fear gauge', which serves as a benchmark for how much volatility may occur in the market over the next 30 days, has declined from the level of 17 recorded in late October, but it remains at a high level due to increasing uncertainties at a global scale.

Year-to-date, the Nifty 50 has recorded a decline of approximately 8%, while the VIX has seen a significant surge of 65.4%. These figures suggest that despite the recent improvement in equities, the level of concern among investors remains high.

The market witnessed a rally on Wednesday, with the Sensex rising 383 points or 0.5% to close at the level of 77,301. At the same time, the Nifty 50 stabilized at 23,960 with an increase of 149 points or 0.6%. Thus, the market saw an improvement for the fifth consecutive session. However, this rally was somewhat hindered by weakness observed in Information Technology (IT) stocks. The Nifty IT index fell 1.5% to 32,061 and had dropped as much as 3% during the session, which had a negative impact on the broader market sentiment.

According to V. K. Vijaykumar, Chief Investment Strategist at Geojit Financial Services, the VIX essentially indicates the probability of volatility in the market. He added that while the market is seeing a rally, investors are fearful of a decline due to various reasons. The crude oil crisis, increasing conflict in West Asia, US election results, and Trump's response—all these factors are increasing the concerns of global investors.

Siddharth Khemska, Research Head at Motilal Oswal Financial Services, stated in a note that after the US midterm elections, investors' attention will focus on the US administration's upcoming steps regarding West Asia. Any increasing tension or diplomatic progress in West Asia could significantly impact crude oil prices and global market sentiment in the short term.

Strong corporate results for the September quarter have supported local equities. Analysts also believe that due to increased valuations in Artificial Intelligence (AI) related stocks, there is a reassessment happening in investment allocation, which could shift global capital flows towards India. The AI-driven rally over the last two years had attracted significant foreign capital to markets such as South Korea, Taiwan, and the US, which had led to a decrease in capital flows towards India.

Crude oil is also a crucial factor for the market. Brent crude prices, which recorded a six-month high of $118 per barrel last Friday, were trading at $104 on Wednesday, representing a 0.7% increase. Investors are keeping a watch on US election developments and the US-Iran conflict. Ajit Mishra, Research Senior Vice President at Religare Broking, stated that for the market to fully recover, crude will have to stay at current levels or below $100 per barrel. If there is a slowdown in AI, it could pose a risk to the gains made so far.

The Volatility Index (VIX) was the benchmark for expected volatility in the market for the next 30 days. It indicated the probability of fluctuations occurring in the market.