Market volatility at 15-month high on elections, rate cut uncertainty

The 15-month high mark for the India VIX comes just weeks after it touched a lifetime low, falling nearly 20% on April 23. On Monday, the VIX had risen 13.5%.

Bengaluru: Indian bourses ended in the red on Tuesday with investors turning wary as the counting day of the ongoing general elections approach and rising concerns of overvaluation. The market volatility, measured by the Nifty Volatility Index, touched at a 15-month high.

The 30-share BSE Sensex closed 383.69 points or 0.52 per cent to settle at 73,511.85. During the day, it had dropped 0.86 per cent. The NSE Nifty declined 140.20 points or 0.62 per cent to 22,302.50.

The Nifty Volatility Index (VIX) rose for the ninth consecutive session to close at 17.01 on Tuesday. Analysts said that there is expected to be some nervousness with elections proceeding phase by phase, and the counting day of June 4 looming closer, as uncertainty will compel investors to hold money.

The 15-month high mark for the India VIX comes just weeks after it touched a lifetime low, falling nearly 20 per cent on April 23. On Monday, the VIX had risen 13.5 per cent.

“India VIX going up sharply is a sign that there is nervousness in the markets. There is a sense of anxiety and that is visible in the broader market movement. VIX goes up before big events, be it elections or budget,” said Siddhartha Khemka, head of retail research at Head Motilal Oswal Financial Services Ltd.

Khemka said that there were also concerns on rate cuts following the latest indication by the US Federal Reserve.

“Foreign Institutional Investors (FIIs) are selling Rs 2,000-3,000 crore every day. This has more to do with rate cut fears than with Indian elections,” he said. FIIs had offloaded equities worth Rs 2,168.75 crore on Monday, as per exchange data.

On Tuesday, eleven out of the 13 major sectoral indices declined, with heavyweight financials and auto stocks closing down 0.92 per cent and 1.83 per cent, respectively.

The Nifty PSU index, which comprises of state-run banks, also ended 2.31 per cent lower, with analysts saying that lenders' margins are at higher risk from the Reserve Bank of India's proposed guidelines regarding project finance.

“Markets have run up quite a lot over the last six months or so. There has been a lot of profit booking and portfolio churn. There is overvaluation,” said Amit Kumar Gupta, founder of Fintrekk Capital. 

Among the bluechip heavyweights, shares of Reliance Industries fell 1.23 per cent, ICICI Bank fell 1.48 per cent, while HDFC Bank fell 1.08 per cent, on the Bombay Stock Exchange. Other Sensex laggards included Power Grid, IndusInd Bank, Tata Motors, JSW Steel, NTPC, Mahindra & Mahindra and Axis Bank.