Riding the Storm: How India VIX Signals Opportunity in Volatility

What is India VIX?

The India VIX, often called the ‘fear gauge’ of Indian equities, measures market participants’ expectations of near-term volatility. It often sees sharp increases during periods of heightened uncertainty, such as geopolitical tensions, election results, major economic policy changes etc., reflecting the market’s reaction to significant macro events. It is derived from NIFTY option prices and reflects the expected annualized change in the NIFTY 50 index over the next 30 days. It is calculated using Black-Scholes model inputs from the prices of near-term and mid-month Nifty option contracts.

• A Higher VIX suggests higher expected volatility and markets may swing more sharply.
• A Lower VIX indicates lower expected volatility, markets are likely to be stable or move gradually.

How to interpret the India VIX?

VIX Value	Market Sentiment	Interpretation
10-15	Calm	Indicates low volatility; more stable, less stressful periods in the markets.
15-20	Neutral	Mild concerns, normal market fluctuations expected.
20-30	Caution / Uncertainty	Market expects increased risk due to earnings, policy changes, global events, etc.
30+	Panic / Fear	High anxiety often during crises, corrections or geopolitical tension.

Historical Patterns: Extreme volatility is more often than not followed by strong returns

Spikes in VIX typically coincide with heightened uncertainty (elections, geopolitical shocks, economic crises etc.), leading to sharp drawdowns. However, history shows that periods of extreme volatility is often followed by robust equity market rallies.

• During the COVID-19 crash (Mar-20), the India VIX surged above 80 (one of the highest on record). As soon as the VIX crossed 29 (+2 SD), the Nifty50 delivered ~45% return in the following 12 months.
• In Aug-2013 (Taper Tantrum), VIX crossed 30; the next one-year return was >40%.
• Similar patterns were seen in 2022 (Russia-Ukraine Crisis) and in Jun-2024 (Lok Sabha Election Results).

 

VIX >29 (+2 Std. Dev.)	6M Return (%)	1Y Return (%)	2Y Return (%)
05-Feb-10	17%	16%	7%
09-Aug-11	6%	7%	6%
22-Aug-13	14%	48%	25%
11-Apr-14	17%	31%	8%
09-Mar-20	9%	45%	27%
24-Feb-22	9%	9%	18%
MEDIAN	12%	23%	13%

Source: Investing.com, NSE Indices Data. Priced as on 8 May, 2025.

Why it happens?

• When VIX peaks, markets have often already priced in worst-case scenarios. Panic leads to indiscriminate selling, creating attractive entry points for long-term investors.
• Once uncertainty recedes, mean reversion and valuation comfort drive strong rebounds.

Implication for Investors:

• High VIX ≠ Exit; it often means Entry.
• Elevated volatility should not be feared rather, it should be seen as a signal to build exposure gradually.
• Investors who stayed invested or added during past VIX spikes were rewarded handsomely.

Closing Thought:

Extreme volatility is emotionally challenging, but historically it has also marked the start of major bull runs. For investors with a long-term lens, India VIX is not a red flag, it’s a green light with caution.