Mumbai: The India volatility index (Vix) rose to a five-month high on Thursday, indicating that investor confidence is taking a hit as share prices retreat from record highs.

Vix, the so-called fear index, rose 5.31% to 14.17. The measure of investor anxiety has risen 32.1% from the record lows it had touched on 25 May, indicating that investors are no longer complacent about risks.

“Risk factor in the markets has increased as uncertainties have multiplied manifold. Worse-than-expected June quarter earnings have also impacted sentiment in the markets," said Deepak Jasani, head of retail research at HDFC Securities Ltd.

The Monday night directive by Securities and Exchange Board of India (Sebi) to stock exchanges to act against 331 suspected shell companies also jolted investor confidence and contributed to increasing volatility. Of the 331, 162 were actively traded and 169 had already been suspended.

The markets are still feeling the hangover of the Sebi order, Jasani said.

“Continuous selling in global stocks, which were anyway overbought after a large sustained rise amid escalating geopolitical tensions between the US and North Korea, also weighed on domestic sentiments," he added.

Investor anxiety led to a sharp fall in indices for the fourth consecutive session.

On Thursday, the BSE Sensex fell 266.51 points, or 0.84%, to 31,531.33. The National Stock Exchange’s Nifty breached the psychological 9,800 barrier, hitting 9,776 intraday before closing at 9,820.25, down 0.89%.

In August, the BSE Smallcap and Midcap have lost 5.66% and 4.11%, respectively, and Sensex and Nifty shed 3.02% and 2.55%. Year to date, Sensex has gained 18.42% and Nifty climbed 20%.

“Markets valuations were overheated and corrections were due," said Sachin Shah, fund (portfolio) manager, Emkay Global Financial Services Ltd, attributing the correction to short-term jitters.

Despite the August selling, Indian markets are still among the most expensive among peers. The price-to-earnings (PE) ratio of the Sensex is 18.19 and the Nifty 17.73. The MSCI India index is trading at a PE of 17.7, compared with MSCI Emerging Markets at 12.69 and MSCI World at 16.54.

So far this year, foreign institutional investors have invested a net of $8.98 billion into Indian stocks, while domestic ones have bought Rs29,572 crore of stocks.