India VIX Drops as Markets Recover from Previous Dips

The India VIX, which measures market volatility, experienced a sharp drop of 27 percent to a level of 14.87. This decrease was mainly triggered by a strong recovery in key stock indices, including the Sensex and Nifty50.

The BSE Sensex climbed by 1,100 points, or 1.38 percent, reaching an intraday peak of 79,852.08, while the NSE Nifty50 saw a rise of 1.35 percent, adding 327 points to hit an intraday high of 24,382.60.

According to Jigar S Patel, a senior manager and technical research analyst at Anand Rathi, the recent movement of the VIX indicates a technical pattern called a triple bottom between the 11 and 12 levels. This particular pattern often points to a potential trend reversal, especially if accompanied by a bullish divergence on the Relative Strength Index (RSI), suggesting an upcoming bullish reversal.

Patel forecasts that in the short term, the India VIX may find support in the 17-18 range, potentially acting as a floor if the index continues to decline. On the upside, he expects resistance around 24, with a stronger barrier at 25, which might hinder any significant upward movement. A daily close below 20 could signal a temporary dip in volatility and a period of calm.

In other parts of the world, Asian markets also showed a robust recovery, with the Nikkei and Topix indices each gaining 11 percent after a challenging market phase. The Kospi in South Korea surged up to 5 percent, while Australia’s ASX200 saw a modest rise of 0.3 percent.

This rebound was supported by an increase in US stock futures, notably with Nasdaq futures climbing over 2 percent, while the S&P 500 and Dow Jones also gained 1.54 percent and 1 percent respectively. Part of this recovery can be attributed to the bounce back in Japanese equities and the Yen carry trade.

Comments from US central bank officials also played a role in easing market fears. They clarified that July’s job data, although disappointing, did not necessarily indicate a looming recession. San Francisco Fed President Mary Daly pointed out that while the job report hinted at a slowdown, it was not a drastic collapse.

The reversal in market sentiment is particularly interesting because it follows a turbulent day on August 5 when the VIX spiked by 61.66 percent intraday, hitting 23.15 during a global market sell-off.

This spike was largely driven by anxiety over a potential recession in the US and a significant drop in the Nikkei and Topix indices, which had plunged over 13 percent the previous day. On August 5, the BSE Sensex plunged 2,686 points, a decrease of 3.3 percent, while the NSE Nifty50 fell below the important 24,000-mark.

Despite the turbulence, V K Vijayakumar, chief investment strategist at Geojit Financial Services, noted that domestic investors exhibited resilience, with Domestic Institutional Investors (DIIs) purchasing shares worth Rs 9,155 crores, in contrast to Foreign Institutional Investors (FIIs) who sold shares worth Rs 10,073 crores.

Vijayakumar also commented on the overall market, stating that quality large-cap stocks have remained relatively stable despite the broader volatility. He suggested that investors refrain from panic selling and consider gradually accumulating quality large-cap stocks, as fears about a US recession might be exaggerated.