News

India VIX is at record low levels. The volatility index settled at a record closing low of 9.71 on Thursday, December 18, falling 15% in December and down for the second consecutive month. A significant fall in the fear gauge reflects a sharp decline in perceived market risk and expected volatility.

Market participants appear to be pricing in stability rather than sharp directional moves in the near term. Such low readings typically emerge when markets are trading in a controlled range, and uncertainty around macro, earnings, or global triggers is limited.

The 9–12 range, as experts say, is the lower band, while the normal range for India VIX is around 12 to 15. In a normal scenario, when the market has enough triggers to move either upward or downward, though not necessarily with extreme volatility, the VIX tends to hover in this range of 12 to 15.

"The sharp decline in India VIX in December reflects that the market is trying to price in near-term stability and low uncertainty of any big event. So, the fall is driven due to the absence of major domestic or global risk events," said Prashanth Tapse, Senior VP (Research) at Mehta Equities.

When the volatility index is in this range, it suggests that the stock market is not anticipating any wild swings in the near term.

Does the record low India VIX indicate that the market is somewhat clueless and lacks any significant trigger?

"Probably yes. One reason for this could be that the India VIX is at record lows, indicating that the market is not pricing in any major event, at least over the next 30 days," said Ajit Mishra, SVP of Research at Religare Broking.

"At present, traders are keeping positions light. Even options premiums have softened, reflecting the fact that traders are not expecting any major or wild swings at this juncture. This is also one of the reasons why the VIX is trading lower," said Mishra.

The market is focusing on developments on the front of a potential India-US trade deal and peace talks between Russia and Ukraine. Apart from these two, there is no trigger that can move the market significantly.

"We still have over a month to go before the Budget 2026. Before that major event, there doesn’t seem to be any major trigger in January, except perhaps the Bank of Japan meeting on December 19 and the US Federal Reserve policy decision on January 28. The yen carry trade could resurface, but for now, the indications point towards muted trading sessions ahead," said Mishra.

However, there remains the possibility of trend reversal in the domestic market as early as January when the holiday season is over in the US and focus shifts to the India-US trade deal and the Russia-Ukraine peace efforts.

Moreover, December quarter earnings will start percolating from the second week of January. If they come in line with expectations, they can lead to some traction in select sectors and stocks.

FIIs, too, have bought Indian stocks over the last two sessions. While they have been relentlessly selling in Indian markets, a shift in their stance can also drive the market higher.

Mishra believes that if the VIX stays at the lower end, it is actually positive for the market as it indicates a lack of fear.

"Even if it rises to around 12–13 levels and the market resumes its strength, that would also be constructive. It would suggest that the market is finally finding some direction," said Mishra.

However, a low VIX doesn’t necessarily mean markets will go up.

As Tapse underscored, it only indicates that big swings are less expected.

"We have seen many events happening on a weekend. If an unexpected event arrives, markets can react sharply because hedges are thin," said Tapse.

On the domestic front, things remain largely positive, barring the weakness in the Indian rupee concern, which appears to be stabilising. If something unexpected emerges on the geopolitical front, that would be a different scenario. Otherwise, the overall setup looks stable.

Falling VIX also suggest that traders are not aggressively buying put options to hedge against the downside.

Aakash Shah, a research analyst at Choice Broking, explained that from a derivatives market perspective, a falling VIX suggests that traders are not aggressively buying put options for downside protection.

"When demand for puts rises, implied volatility increases, which pushes the VIX higher. The current low VIX indicates reduced hedging activity due to confidence that sharp drawdowns are unlikely in the near future. This also reflects that traders are preferring carry-based strategies such as option selling rather than aggressive directional bets," said Shah.

There is a strong inverse relationship between VIX and option premiums.

Shah explained that VIX is derived from implied volatility, which is a key component of option pricing. When VIX is low, both call and put option premiums become cheaper. While this reduces the cost of hedging, it also lowers returns for option buyers. Consequently, option sellers benefit in such an environment due to faster time decay (theta), making short volatility strategies more attractive.

However, extremely low VIX levels can sometimes act as a contrarian indicator.

Shah underscored that prolonged complacency may leave markets vulnerable to sudden spikes in volatility if unexpected news or events emerge.

"While low VIX supports range-bound or mildly trending markets, traders should remain cautious, as volatility tends to revert to its mean over time. While the current VIX behaviour indicates market complacency, reduced hedging demand, cheaper option premiums, and perhaps the dominance of option-selling strategies, it is also calling for vigilance against abrupt volatility expansion," said Shah.

Read all market-related news here

stories by Nishant Kumar

Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.

Catch all the Business News , Market News , Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.

Download the Mint app and read premium stories

Log in to our website to save your bookmarks. It'll just take a moment.

Oops! Looks like you have exceeded the limit to bookmark the image. Remove some to bookmark this image.