IndiaVix surges 65%, even higher than what was witnessed during Covid Crash. When was the last time it recorded a similar surge in volatility and fear?
Source: TradingView
Trump’s tariff policy announcement on 2nd April’25 and the retaliatory tariff by China has led to extreme volatility and fear in the global markets. The major indices of US witnessed sharp selling pressure taking S&P500 and Dow Jones (DJI) Indices below their 200D EMA. Nasdaq (IT Index of US) has corrected more than 20% from its recent high, indicating the start of bear market.
Today, as the Indian markets opened amidst US market crash, the India VIX recorded a surge of 65%. To put this in context, this was even higher than what we witnessed during the Covid crash.
“The India VIX, often referred to as the “fear gauge” of the Indian stock market, measures the market’s expectation of volatility over the next 30 calendar days based on NIFTY options prices. ”
The closest 'fear gauge' spike was reported on 24th August 2015 - when it shot up > 75% intraday but closed at 64%—popularly known as 'Black Monday'. Why?
Key Reasons behind that led to ‘Black Monday’:
China's Economic Slowdown and Stock Market Crash: The primary trigger was mounting concern over China's economic health. Earlier in 2015, China's stock market had plummeted, with the Shanghai Composite Index losing over 30% of its value since June due to a bursting equity bubble. On August 24, the index dropped another 8.5%, its steepest single-day fall since 2007. This intensified fears of a hard landing for China's economy, a major global growth engine. A surprise devaluation of the Chinese yuan by the People's Bank of China earlier that month (August 11-12) had already rattled markets, signaling potential weakness in China's export-driven economy and raising doubts about the effectiveness of its policy measures.
Global Contagion and U.S. Market Reaction: The U.S. markets mirrored this panic. On August 24, the Dow Jones (DJI) plunged over 1,000 points within minutes of opening, eventually closing down 588 points (3.6%). The CBOE Volatility Index (VIX), the U.S. equivalent of IndiaVIX, spiked to its highest level since 2011, reflecting extreme investor fear. This volatility was fueled by uncertainty over China's slowdown impacting global demand, particularly for U.S. exports, and by algorithmic trading sell-off.
Commodity Price Collapse: Falling commodity prices, especially oil, exacerbated the situation. Brent crude oil prices dropped below $45 per barrel, a six-year low, driven by oversupply and waning demand from China. This hit commodity-dependent economies and added to the global risk-off sentiment, further pressuring equity markets worldwide, including India.
By the way, if you're still thinking if 24th August 2015 was the only 'Black Monday', let me clear the mist. Black Monday is the name given to stock market crashes that occurred on four different Mondays. They were:
October 28, 1929
October 19, 1987
August 24, 2015
March 9, 2020
How did the Indian Stock Market respond to the Black Monday?
In India, the NIFTY 50 index crashed by 490.95 points (5.92%), closing at 7,809, its biggest single-day percentage drop since May 2009. The Indian market was highly sensitive to global cues due to its reliance on FIIs flows. FIIs began pulling out capital amplifying the NIFTY's decline and pushing volatility expectations higher.
The surge in India VIX was in lockstep with the U.S. VIX spike because both markets were reacting to the same global shockwaves. The interconnectedness of financial markets meant that fears of a U.S. economic slowdown—triggered by China’s woes and reflected in the U.S. VIX jumping to 40.74 intraday—spilled over to India. Indian investors, anticipating sharper NIFTY swings due to FII outflows and global risk aversion, bid up NIFTY options prices, driving the India VIX higher.
Why does the surge in IndiaVIX make sense?
The India VIX is calculated from the bid-ask spreads of out-of-the-money NIFTY options. On August 24, demand for protective puts soared as investors hedged against further declines, inflating implied volatility and thus the VIX.
Since you've held onto reading this blogpost, let me leave you with a thought to “History repeats and creates opportunities for those who know its real worth. When you deep dive into the charts, you start connecting the dots of present price action and global cues, taking leverage from historical data in the charts. That's the beauty of being a Chartist!
