India VIX: The market’s ECG that measures fear & calm

When we visit a doctor for chest pain, the first test we usually get is an ECG — a way to check if the heart is beating normally. The India VIX does something similar for the stock market. It acts as an “emotional ECG” that tells us whether investors are calm, nervous, or outright panicking. And just like a doctor doesn’t ignore unusual heartbeats, long-term investors shouldn’t ignore big shifts in VIX either.

So, what exactly is India VIX? It’s short for the India Volatility Index, launched by the National Stock Exchange in 2008. It measures how much traders expect the Nifty 50 index to move — up or down — in the next 30 days. It doesn’t tell you which way the market will move. Instead, it tells you how much it might move. If the number is low, it means the market expects a smooth ride. If it’s high, it suggests there may be turbulence ahead.

The number itself comes from prices of stock market options — financial tools traders use to protect themselves against sharp ups and downs. When these protections become expensive, it signals rising anxiety. India VIX picks up on this and turns it into a single number, updated in real time.

Over the years, VIX has proved to be a surprisingly useful guide to market mood. For instance, during the global financial crisis in 2008 and the COVID crash in March 2020, the India VIX shot up to extremely high levels — above 80 in both cases. The Nifty fell sharply, but here’s the interesting part: both times, the markets bounced back strongly over the following year. This shows us something important — when fear is at its peak, recovery often follows.

So, how should you read the VIX? When it falls below 13, it usually means the market is calm, and maybe even a little too confident. A range between 13 and 17 is considered normal. When the VIX rises above 20, it’s time to be alert — not to panic, but to make sure your investment plan is still on track. And when it crosses 25 or 30, it usually reflects major concern in the market.

There’s also an interesting pattern here: when the stock market falls, VIX tends to rise sharply. But when the market rises, VIX doesn’t fall as much. That’s because fear rises faster than confidence. Investors react more strongly to bad news than to good news.

Now, what can regular investors do with this information? First, you can use VIX as a signal to stay disciplined. If you’re planning to invest a lump sum and the VIX is unusually high, it may make sense to stagger your investments instead. If it’s unusually low, it might be a good time to review your portfolio for balance and risk. Second, VIX can help you understand what’s driving market behaviour. If the market is falling and the VIX is spiking, it’s likely due to fear rather than fundamentals.

Finally, it's important to remember that VIX isn’t a crystal ball. It won’t tell you where the market will go next week. But it does give you a sense of how investors are feeling — and that’s a powerful tool to have in your corner.

Volatility may feel uncomfortable, but it’s a normal part of investing. The India VIX helps make that uncertainty visible and understandable. Like an ECG, it doesn’t predict the future, but it tells you when to stay calm, when to be cautious, and when to prepare for opportunity.

(The writer is Chief of Passive Business, Motilal Oswal AMC)