<ul><li>If you have been looking at share market movements, you might have come across the term <keyword id="158701" type="General" weightage="80" keywordseo="india-vix" source="Orion">India VIX</keyword>.</li><li>India <keyword id="315980" type="General" weightage="100" keywordseo="vix" source="Orion">VIX</keyword> is used as one of the indicators by traders, especially those dealing in options, to understand how to place their bets.</li><li>But what exactly is India VIX and should you care about it?</li><li>We try to break down this concept into simpler words to help you understand what India VIX is and why it is important.</li></ul>Stock markets are volatile beasts and predicting how high or low they will go is a fool’s errand. Mostly because gauging the mentality of millions of traders is not easy. We have all heard “the stock markets are so volatile these days” or something similar, more so over the past two years. While volatility has remained elevated since the last few weeks, more often than not, the surge has been around key national and global events. <div type="image" title="India VIX 01_01_18 to 01_09_22." msid="93935605" hostid="261" caption="&amp;lt;p&amp;gt;India VIX since 2018&amp;lt;/p&amp;gt;"></div> As the chart above shows, India VIX surged multifold rapidly in March 2020 – it kept up pace with the rapid surge in Covid cases in the country, and peaked when the government announced the first nationwide lockdown. The volatility returned to its normal range several months later. By August 2020, it came back under 20, which is usually where it has remained, barring a few exceptions. But all that’s fine, what exactly is India VIX? Let’s decode it together and understand what exactly does India VIX mean and why it is important. <cmsannotation type="cmsannotation" annotationid="What is India VIX?" comment="subhead" text="What is India VIX?">What is India VIX?</cmsannotation> Simply put, VIX is short for Volatility Index. India VIX was introduced by NSE in 2003. It is based on the simple concept of how rapidly and unpredictably the Nifty 50 index is expected to change in the next 30 days. It is worth noting that volatility doesn’t just mean price falls – it’s also related to upward trends. A higher India VIX means higher unpredictability and volatility, while a lower number suggests the market trends are more predictable. In simpler terms, higher the VIX, more the fear in the market. Lower the VIX, lower the fear. <div type="Article" hostid="261" msid="93746079" title="This financial metric explains how the Indian economy will take some time before it is back on track" mstype="2" mssubtype="0"></div> <cmsannotation type="cmsannotation" annotationid="How is India VIX calculated?" comment="subhead" text="How is India VIX calculated?">How is India VIX calculated?</cmsannotation> India VIX is calculated using the Black &amp; Scholes model. It is measured using five variables of options contracts for the near and next month – these variables are strike price, market price of the stock, time to expiry, risk-free rate, and volatility. The VIX values represent the percentage change expected in the Nifty 50 index. For example, if India VIX is at 20, it means the Nifty 50 index can increase or decrease by 20% from its current level, over the next 12 months. So, if Nifty is currently at 17,500, and India VIX is at 20, it means Nifty can fall to 14,000 or rise to 21,000 from now until the next 12 months. To get a precise range for the next 30 days, use this formula: (20/√(12)) * 17,500. This gives us +/- 1,010. This means the Nifty 50 index can fall to 16,490 or increase to 18,510 in the next 30 days. <div type="Article" hostid="261" msid="93208654" title="Explained: US Fed’s rate hikes, quantitative tightening and its impact on India" mstype="2" mssubtype="0"></div> <cmsannotation type="cmsannotation" annotationid="Why is India VIX important?" comment="subhead" text="Why is India VIX important?">Why is India VIX important?</cmsannotation> India VIX helps traders understand the direction and the expected amount of change that is expected in the Nifty 50 index. This is especially useful for those dealing in futures and options. However, even a cursory look at India VIX and an understanding of the ongoing economic trends can help one get a brief idea about the market trajectory in the short term. SEE ALSO: <a href="https://www.businessinsider.in/stock-market/news/spicejet-sheds-400-crore-in-value-within-an-hour-of-trading-as-cfo-quits-and-losses-mount/articleshow/93919673.cms">SpiceJet sheds ₹400 crore in value within an hour of trading as CFO quits and losses mount</a> <a href="https://www.businessinsider.in/stock-market/news/hcl-tech-beats-wipro-to-become-indias-third-largest-it-company/articleshow/93879712.cms">HCL Tech beats Wipro to become India’s third largest IT company</a> <a href="https://www.businessinsider.in/finance/banks/news/indians-love-for-travel-is-so-strong-that-its-boosting-credit-card-spends/articleshow/93859780.cms">Indians’ love for travel is so strong that it’s boosting credit card spends</a>

Explained: What is India Volatility Index or VIX, and why is it important now?

<ul><li><keyword id="158701" type="General" weightage="20" keywordseo="India-VIX" source="Orion">India VIX</keyword> represents how the investors perceive the markets to move in the next 30 days. Higher the <keyword id="315980" type="General" weightage="100" keywordseo="vix" source="Orion">VIX</keyword>, higher the volatility and vice versa. </li><li>In 2022, on an average, VIX is at 19.8, staying well below the 20 level during 7 out of 11 months so far, suggesting that the fear in the market is at a comfortable level. </li><li>Experts Business Insider <keyword id="3658" type="General" weightage="80" keywordseo="india" source="Orion">India</keyword> spoke to highlighted two factors which will influence the volatility index in the next two months – Corporate earnings and budget </li><li>Q3 earnings will start pouring in from January next year, while the Union Budget will be announced on February 1st. </li></ul>India VIX, an index that measures volatility in the markets in the near-term, has cooled down just as India heads into the winter season. With cooling temperatures, investors too seem less stressed about the equity markets with VIX falling below pre-Covid levels. “India VIX is moving at substantially lower levels in the last few months, factoring India being in a better position compared to other countries in terms of inflation and interest rates,” Arun Kejriwal, founder of Kejriwal Research &amp; Investment Services told Business Insider India. On an average, VIX shot up to over 27 points in 2020, the year of the Covid-19 pandemic. The biggest surge came in March 2020 when India entered the first nationwide lockdown – for instance VIX surged to 83 on March 24, a day after the lockdown was announced, which helped push the monthly average over 51. Not until December of that year did VIX fall below 20. <div type="image" title="VIX" msid="95743156" hostid="261" sizebytes="51210"></div> It is worth noting that these averages are on a monthly basis, so while there were major spikes in the first week of the lockdown, the overall average is lower since VIX was relatively lower in the days before the announcement. Fast-forward to 2022. On an average, VIX is at 19.8, having stayed well below the 20 mark during 7 out of the 11 months so far, suggesting that the fear in the market is at a comfortable level. “India VIX has cooled down to the lowest in two years at 13.8 levels (down -6%),” said Siddhartha Khemka, head - retail research at Motilal Oswal Financial Services. “Currently investors know how the (US) Fed will react in the near future considering comfortable job, housing data that will help inflation to come down,” Shrikant Chouhan, head of equity research (retail) at Kotak Securities told Business Insider India. <cmsannotation type="cmsannotation" annotationid="Q3 earnings, budget could heat up VIX" comment="subhead" text="Q3 earnings, budget could heat up VIX">Q3 earnings, budget could heat up VIX</cmsannotation> While multiple factors influence the movement of VIX, experts Business Insider India spoke to highlighted two factors which will influence the volatility index in the next two months. “Corporate earnings and budget expectations are two factors that will impact the volatility index in the near future,” said Chouhan. Earnings for the quarter ending December will start pouring in from January next year, while the Union Budget will be announced on February 1st. “VIX will increase at the end of December or may be at the start of next year because market participants will start talking about quarterly earnings estimates,” Chouhan added. Kejriwal highlighted the India Budget effect on VIX. “This budget is going to be very significant because of the last [full] budget of the current government, so anything that the government wants to do for people has to be in the coming budget. Ahead of the budget from January 15-30 I wouldn’t be surprised if VIX goes up sharply," he said. Global factors like interest rate decisions, crude oil prices and supply chain issues could also impact investor sentiment. <cmsannotation type="cmsannotation" annotationid="Uncertainty and VIX" comment="subhead" text="Uncertainty and VIX">Uncertainty and VIX</cmsannotation> India VIX represents how the investors perceive the markets to move in the next 30 days. Higher the VIX, higher the volatility and vice versa. "Volatility index movement depends on events that markets have to face in the near future. If those events are completely uncertain or because of which markets can turn violent in the range of 10%, in such a scenario we see VIX rising high,” Chouhan. The calculation methodology includes the best bid and ask quotes of the near and next month Nifty options contracts. The detailed formula is available on the NSE website. SEE ALSO: <a href="https://www.businessinsider.in/india/news/india-projected-to-become-worlds-third-largest-economy-overtaking-japan-and-germany-sp/articleshow/95715786.cms">India projected to become world’s third largest economy overtaking Japan and Germany: S&amp;P</a> <a href="https://www.businessinsider.in/finance/news/mukesh-ambanis-jio-financial-services-deep-pockets-and-wide-reach-to-challenge-the-likes-of-paytm-bajaj-finance/articleshow/95714425.cms">Mukesh Ambani’s Jio Financial Services’ deep pockets and wide reach to challenge the likes of Paytm, Bajaj Finance</a> <a href="https://www.businessinsider.in/stock-market/news/high-or-low-indian-retail-investors-are-getting-wiser-about-riding-the-equity-market-wave/articleshow/95740182.cms" data-type="tilCustomLink">High or low, Indian retail investors are getting wiser about riding the equity market wave</a>

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Explained: What is India Volatility Index or VIX, and why is it important now?

Rounak Jain

India VIX cools down to pre-Covid levels – here’s why and where it is headed

Rounak

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