Volatility index tops 17 on global uncertainties

The NSE's Volatility Index India VIX on Monday spurted over 14 per cent to 17.49, signalling nervousness and fear among investors with many an uncertainty, from China to the US. India VIX crossed the 17-mark for the first time since June 3 and in the last five days has zoomed 26.4 per cent.

According to market experts, the most worrying news is from China. Evergrande, which has been sitting with a huge debt of over $300 billion, faces default risk. Analysts fear that if Evergrande fails, it can trigger a global financial meltdown like that post Lehmann Brothers collapse.

The BSE Sensex closed at 58,490.93, down 524.96 points or 0.89 per cent. The Nifty 50 was down 1.07 per cent or 188.25 per cent to 17,396.90. Nifty Midcap 50 was down 2.53 per cent while Nifty Smallcap 50 was down 1.78 per cent.

Evergrande’s $305-b debt

International investors piling onto China in recent years are now bracing for one of its great falls as the troubles of a highly leveraged property giant China Evergrande come to a head. “The developer's woes have been snowballing since May. Dwindling resources set against 2 trillion yuan ($305 billion) of liabilities have wiped nearly 80 per cent off its stock and bond prices, and an $80-million bond coupon payment now looms next week,” said HDF Securities.

Traders also turned cautious ahead of the US Federal Reserve and the ECB meetings this week, awaiting indications as to when the central banks will start withdrawing their monetary stimulus and start raising interest rates.

Santosh Meena, Head of Research, Swastika Investmart Ltd, said that there is a possibility that the US Fed willl talk about the timeline of bond tapering, which could be as early as November and that may lead to a cautious move in the global equity markets.”

Valuation, Delta variant

This along with worry over slower economic growth and rising Delta variant cases globally continue to keep market nervous. Even valuations are not comfortable and hence could lead to bouts of profit booking, said Siddhartha Khemka, Head - Retail Research, Motilal Oswal Financial Services Ltd.

Volatility index captures the expected movement — upside or downside — of the underlying assets over the near term. The fear gauge has been moving in a comfortable range between 12 and 13 the last few months.

Rising volatility is not a good sign for India. The current rally, which has shot up the valuation of Indian markets to a dizzying heights, will taper if fund houses adopt a strong selling risk-off strategies.

However, some experts believe a correction is over due. With the economy showing signs of recovery, a 10-15 per cent correction will give good entry points for long term investors.