Protection money
The possibility of a pro-market, less profligate government is sending the equity indices north
In the last weeks and months, India’s equity markets have been a bit euphoric. The possibility of a pro-market, less profligate government is sending the indices north.
But something else is afoot as well: one can discern some caution in this festive mood. Usually the Nifty and India VIX—a volatility index based on Nifty options prices—move in opposite directions and are negatively correlated.
But Bloomberg reported that on 2 April, the 20-day correlation between India VIX and Nifty touched a record 0.53, from a historical average of minus 0.48. Both the volatility index and the underlying equity index tracked by it marched in lockstep.
What’s happening? Are traders worried that a government of their liking may not come to power? So far, opinion polls have predicted a favourable outcome for Bharatiya Janata Party. But they have been poor forecasters in the past. India, it seems, will remain jittery until the elections are over.
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