NSE’s Volatility Index (India VIX), or the fear gauge, rose by 10% in the last one week to 13.89. The level is far lower than the highs seen in February. Despite the jitters in the broader equity markets, the yardstick has remained calm in the recent past (see chart). “This might indicate complacency as India VIX is based on Nifty, which has largely withstood the selling pressure on the back of a few major bluechip outliers," pointed out Edelweiss Broking Ltd in a report last week.

In general, strong domestic fund inflows are keeping sentiment upbeat and complacency high. “At a broader level, there has been a high level of volatility in India. However, there has been a truncated rally in a few stocks in the Nifty index, which is keeping the index up," said Dhananjay Sinha, head of research, economist and strategist, Emkay Global Financial Services.

So far this fiscal year, the top five stocks in the Nifty 50 index, which have appreciated the most include Reliance Industries Ltd, Tata Consultancy Services Ltd, Bajaj Finance Ltd, Sun Pharmaceuticals Industries Ltd and Mahindra and Mahindra Ltd. Till now, the Nifty 50 index has increased as much as 14.6%. In comparison, the Nifty mid-cap 100 index has gone up 4.4%, while the Nifty small-cap 100 index has declined by 3.5%.

For investors, it is important to understand that they will have to live with high volatility in broader markets, reckons Sinha, adding that the uncertainty will keep sentiments cautious. There were huge downgrades in FY16, but the pace of downgrades has decreased since then, said Vinod Karki, vice-president, strategy, ICICI Securities Ltd.

There is hope that the earnings upgrade cycle will happen sometime soon.

According to Karki, analysts are taking cognizance of the pressure on margins due to rising input costs, but any underestimation on the impact on earnings could lead to more downgrades, going ahead.

This means that the quarterly numbers in the next few quarters will be very crucial. “If earnings disappoint, then that will be reflected in the VIX," said Karki.

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