India's Stock Fear Gauge Hits Near Two-Year High, Soars 72% Ahead Of Poll Outcome

Indian stock market volatility surged another 20% on Monday as the Lok Sabha elections' poll outcome approached.

The markets' fear gauge, India VIX, rose as high as 20.66% in early trade to 26.19 and closed 6.83% higher at 23.19. The previous highest level was seen at 28.13 on June 16, 2022.

This spike is consistent with the typical behaviour of the India VIX before major events, according to Vaibhav Porwal, co-founder of Dezerv. However, compared to the last three election periods, the current VIX level is significantly lower than the historical trend, he said.

The VIX shall cool off once the event (election results) is over, and hence, till then, traders should avoid aggressive positions and focus on money management, according to Ruchit Jain, lead researcher at 5paisa.com.

The spike in volatility comes days before the last phase and the subsequent results of the Lok Sabha elections. During Phase 6, a voter turnout of 59% was recorded on an all-India basis, and a turnout of 57.82% was recorded during Phase 5.

The ongoing Lok Sabha elections mark the highest volatility experienced by the Indian stock market in history. Since the commencement of phase 1 on April 20, the volatility gauge has surged by approximately 72%, surpassing the previous high of 49% recorded during the 2014 elections.

Historically, post-election periods witness a decrease in volatility, typically by at least 20%.

Vaibhav Porwal highlighted that in the 12 days preceding the election results, the VIX fluctuated between 26 and 49 during the 2009, 2014, and 2019 election years. He stated, "As we approach the result day, we anticipate a further increase in the VIX, followed by a decline post-election, reflecting the patterns observed in previous election cycles."

The volatility was at 29 last election and currently, it is at 23, so we still have room for further upside, Ajit Mishra - SVP Research - Religare Broking Ltd. said. "However, the market tone is positive as we made a new high last week so participants shouldn't read much into this and focus on identifying quality stocks for accumulation on dips."

India's benchmark indices ended lower changed on Monday after hitting record highs tracking losses in shares of Reliance Industries Ltd., ITC Ltd., and Mahindra & Mahindra Ltd.

Earlier in the day, the NSE Nifty 50 rose 0.67% or 153.70 points to a record high of 23,110.80. The S&P BSE Sensex 0.79% or 599.29 points to a fresh high of 76,009.68.