Lok Sabha Election results came as a shock to the stock market yesterday 4 June 2024. Defying all exit polls, the BJP-led NDA government could not even cross the 300-seat mark while the exit polls predicted it to cross 350 and more. This made the market fall flat on its face, and it was all red on Dalal Street yesterday. BSE Sensex tanked more than 6000 points during the first half of the session while NSE Nifty 50 tanked close to 2000 points. Both the broad market equity index closed at more than 6% low. The uncertainty in the market spiked the India VIX to gain more than 41%, which indicates significant volatility in the market and it is here to stay for some time now.
What is the India VIX index? What it means for the investors?
India VIX index is a volatility index that measures how much the market will fluctuate or remain volatile in the short term. This index rose more than 37% yesterday at the market close while around afternoon 12:46 pm; it went up to 41.34%. This indicates the market to remain volatile in the near term.
As India vix surged, along with the expectations for volatility, the downside risk eased as well. It has been seen from the past, that the index had collapsed right after a similar event’s maturity, which restricted the upward movement of the market. However, this time, with the huge spike in the index, the market has room for upside as well.
The reason behind the uptick in the India VIX index can be primarily attributed to the difference between exit polls and the actual results. The volatility index does not doubt NDA’s return to office for the 3rd term, but BJP losing the majority mark is what concerns the market and its future. Since now it will be a coalition government, the uncertainty will remain there for the upcoming days until things get settled down.
What should investors do?
As the markets are currently exceptionally volatile, for short-term investments, one can opt for a short volatility strategy such as iron butterfly or iron condor, which will help the investor bet on the downside of the VIX along with limiting the risk factors.
For the long-term, the market dip can offer a great buying opportunity for the large-cap or quality stocks whose prices fell due to the market action yesterday. However, before adding any new stock to your investment portfolio, make sure, you do the risk-return analysis, and align the risk of the investment with your risk profile. Rebalancing your portfolio and diversifying it across asset classes is crucial at this point given the rise in the market volatility.
How the markets are performing today?
The current India vix level is at 19.46 which is a fall of around 26% from yesterday’s level. This indicates towards cooling down of the market volatility. However, it will be important to track the Vix movement for the upcoming days, until the new government forms and investors get clarity about the same. The Nifty 50 gained around 400 points until noon on 5 June 2024, while the BSE Sensex gained around 1295 points.
Source – https://zeebiz.com, https://nseindia.com, https://bseindia.com
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Disclaimer: Investments in the securities market are subject to market risks; read all the related documents carefully before investing.