India VIX jumps 68% in three weeks despite 7% rally in Sensex, Nifty

Mumbai: India VIX, an index that measures expected volatility in the stock market, has surged in recent weeks even as benchmark indices have staged a recovery, suggesting that options markets are pricing in larger swings.India VIX has risen 68% in the past three weeks to 17.5 on Monday from 10.5 on September 23. The rise has come even as the benchmark Sensex and Nifty have gained more than 7% over the same period. However, the broader market has lagged, with the BSE MidCap 150 and BSE SmallCap 250 indices declining 3% & 4.6%, respectively.India VIX measures the market's expectation of volatility over the next 30 days. It indicates the magnitude of potential price swings rather than the direction in which stocks are expected to move.135695978The index generally rises when markets fall, as investors seek protection against further losses. However, the relationship is not always inverse, experts said. A sharp rally can also push up volatility when prices move faster than expected.Read more: Samvat 2083 stock picks: 10 ideas from India’s top brokerages for the next Diwali"People are used to the idea that volatility and the Nifty have an inverse relationship: when the Nifty falls, volatility rises, and when it rises, volatility falls. But that is not always the case. The VIX can reflect volatility in either direction. If the market rises faster than expected, the VIX can also move higher," said Rohit Srivastava, founder of Strike Money and Indiacharts.Read more: Can Nifty hit 28,000 before 2028? Citi raises target, sees $12 billion inflowsShort-covering in the derivatives market is another factor that could have contributed to the rise in India VIX. Foreign investor short positions in Nifty futures have declined from around 280,000 contracts to nearly 106,000 contracts. "When short positions are covered, the premium in Nifty futures can rise. Since option prices are linked to the underlying futures price, this can influence option premiums and, in turn, the India VIX," said Chandan Taparia, head of technical and derivatives research at Motilal Oswal.