Mumbai: An index which measures volatility in stock markets rose sharply on Wednesday as equities fell in response to the weakness across global markets, a rise in crude oil prices and concerns over the domestic economy.
During the day, the India VIX rose as much as 17.84% to 20.4625, its highest level since 27 February.
The spike in volatility came together with a fall in benchmark stock indices.
India VIX closed 13.27% higher at 19.6700, while Nifty ended 2.74% lower at 8,097 points. BSE’s Sensex lost 2.63%, or 722.77 points, to close at 26,717.37.
The sentiment across equity markets weakened after a fall in US and Asian stock markets. Crude oil prices also hit their highest levels of 2015. Brent crude was trading at $68.55 per barrel in afternoon trade.
Subdued corporate earnings and a survey that indicated a slump in private sector activity also impacted market mood. HSBC India Composite Purchasing Managers’ Index (PMI) that gauges private sector activity fell to a six-month low of 52.5 in April as demand remained soft.
The passage of the Goods and Service Tax (GST) Bill in the Lok Sabha is seen as a positive. The bill now goes to Rajya Sabha, where the ruling coalition is in a minority.
The National Stock Exchange’s India VIX is an indicator of near-term volatility in the market as it measures the expected change in the underlying 50-share Nifty.
Unlike Nifty which is a price index, a volatility index is computed by looking at the order book change of the underlying Nifty options.
The bigger the market fall, the greater the volatility, said Yogesh Radke, head of quantitative research at Edelweiss Securities Ltd. Greece must pay €750 million to the International Monetary Fund on 12 May, and “if something negative happens there, we could see more volatility," he said.
Foreign institutional investors (FIIs) have been net sellers of Indian equities in 11 of last 12 sessions of April in the cash segment, data from market regulator Securities and Exchange Board of India (Sebi) showed.
On the derivatives front, FIIs have been unwinding their long positions, and are simultaneously creating short positions, which is adding to the pressure in the market, said Radke. An increase in short positions suggests that investors expect the market to fall further.
Interestingly, an index measuring volatility in the US markets was up 11% in overnight trade.
“Our market is largely correlated with global markets, barring some time frames where we deviate depending on domestic news flow," Radke added.