Lok Sabha election 2024: India VIX, also known as the Indian Volatility Index, is a measure of the market’s expectation of volatility over the near term. After retracing from a new 52-week high on Tuesday, the Indian volatility index continued its uptrend and touched an intraday high of 20.58. While climbing to this intraday high, the Indian VIX Index logged a 65 percent rise in one month. This continuous rally of the India VIX Index from the 10.20 mark (23rd April 2024) to 20.58 today, the volatility index has put doubts into the minds of stock market observers whether the India VIX Index rally is a signal of a rising tide against the BJP’s victory in the Lok Sabha elections. Some of the market believes that rising India VIX Index doesn’t mean dent to BJP’s victory but a lower than the claimed number of seats by the BJP and its allies.
According to stock market experts, the India VIX Index is rising not because of the uncertainty over the number of seats the ruling coalition led by the BJP would win. Factors like geopolitical tension in the Middle East and rising US Treasury yield are also playing their respective roles in fueling the volatility index. They said that the rising India VIX Index in the last 20 days should be seen as a signal to the market investors that BJP’s standalone seats coming below 300 would mean a huge blow to the Indian stock market, and we may see strong selling post-Lok Sabha results if the BJP’s seats slump below 300 after the announcement of Lok Sabha election results, scheduled on 4th June 2024.
Providing a historical perspective, Rajesh Sinha, Senior Research Analyst at Bonanza Portfolio, points out that the India VIX Index’s current movement is not unique to this election cycle. He recalls that the India VIX had surged to a high of 39.30 during the 2014 Lok Sabha elections and nearly touched the 30 mark during the 2019 Lok Sabha polls. Sinha suggests that today’s rising India VIX should not be interpreted as a tide turning against the NDA alliance’s clear majority.
It’s important to note that the rising India VIX Index is not a straightforward indicator of the BJP’s seat count. This diversity of expert opinions underscores the complexity of the situation and the need for careful analysis and consideration. It’s a reminder that market trends are influenced by a multitude of factors, and a comprehensive understanding is crucial for making informed investment decisions.
What does the India VIX Index signal?
Speaking on the rising India VIX today and its connection with the Indian stock market, Manish Chowdhury, Head of Research at StoxBox, said, “We believe that the rising VIX is a culmination of two factors and indicates higher volatility in future. Firstly, markets seem to be building in the possibility of lower seats for the ruling government (although majority) than envisioned at the start of the general elections. Moreover, the quarterly results till now have mostly been uninspiring, heightening investors’ nervousness about the valuations commanded by markets in general, especially the mid and small-cap space. We expect markets to witness heightened volatility in the run to elections, with market participants keeping a close watch on the voter turnout for further direction.”
How many seats BJP can win?
On how this rising India VIX Index connected to the possible Lok Sabha election results, Amit Goel, Co-Founder & Chief Global Strategist at Pace 360, said, “In the last three weeks, it seems that the ruling coalition has lost some momentum. We now expect the BJP to secure somewhere between 280-300 seats on a standalone basis. Any number below 290 will be considered negative for Indian equities as it would mean the government would have to slow down on reforms and resort to more populism. Any number above 300 will be considered positive for the Indian markets.”
“We maintain that Indian stocks are overvalued and the potential downside on a bad outcome will be much more than the potential upside on a positive outcome. The VIX’s current behaviour is very similar to the timeframe just before the announcement of the Lok Sabha election results in 2019. The VIX had risen to 28.6 after markets had dropped from their March peaks,” the PAce 360 expert added.
Disclaimer: The views and recommendations provided in this analysis are those of individual analysts or broking companies, and not Mint. We strongly advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and individual circumstances may vary.
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