India VIX: Market volatility may rise ahead of election results, gains capped over priced-in stability; here's why

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Also Read: India VIX: Volatility may rise in the upcoming sessions following a three-month declining trend; here's why Market analysts reckon that the volatility index may rise just ahead of the election outcome. However, the increase may remain capped as the market has already priced in the stability. A significant drop in the volatility index indicates that participants are confident about the near-term market trajectory.

“Historically, India VIX tends to ascend preceding the election, fuelled by anticipation of uncertainty and significant market shifts. However, it typically experiences a sharp decline post-election once the outcome is determined," said Santosh Meena, Head of Research, Swastika Investmart Ltd. In an unexpected turn, India VIX plummeted over 20 per cent on April 23, coinciding with the voting period, marking the most substantial single-day drop since the conclusion of the 2019 election--the sharpest fall in five years.

"Theoretically VIX depicts the volatility expectation for the next 30 calendar days. So, lower the VIX the more confident, the traders are about the ongoing upswing. Option traders also react to such scenarios by reducing expectation of premium expansion,'' said Anand James, Chief Market Strategist, Geojit Financial Services.

This year's surge so far in Indian markets was fuelled by a combination of both domestic and global factors. According to investing.com, the India VIX index declined 2.96 per cent in February, 17.60 per cent in March, and rose 0.29 per cent in April. So far in 2024, India VIX is down 11.25 per cent.