India VIX surge due to global issues, still within normal range: Ajay Bagga
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, Market Expert, says India's VIX has risen to 18, influenced by global uncertainties , but remains within a normal range of 10 to 19. Historically, the VIX surged much higher during crises like Covid-19 and the Global Financial Crisis. While not indicating a specific market direction, it serves as a fear gauge, typically increasing with market anxieties, with levels above 20 warranting caution.It is mostly global factors. If you look at India VIX at about 18, what that really means on an annualised basis over the next 30 days, you could get an 18% movement. It is showing the standard deviation, the square root of the variance. There are formulas for calculating. It shows the forward-looking volatility can be expected in the market. So, it is more the global issues and we do not have to worry as at 18 level, we are within the range. It is not something very highOn March 24, 2020, with Covid uncertainties and selloff in the market, the India VIX was at 86. At the height of the Global Financial Crisis in 2008, it was at 85. On the day of the Ukraine war starting, February 2022, it was at 37. So, 18 is just showing you yes, it has heightened. With respect to a normal range, we see anything from 10 to 19 as normal. Above 20, there's a little bit of concern and in the 30s you say volatility has become very high and expect very volatile returns and we could see sharp drawdowns and sharp rises.Theoretically, 18 is not giving a directional move. Practically we have seen that this number mostly goes up when there is too much fear in the market. We take it more as a fear gauge, it is not a happiness gauge ever. So, theoretically it does not give a direction to the market.No, not at all. I would see this market as a very strong buy-on=dips market. Mutual funds are sitting with a huge cash pile. Any dips are getting bought into. The retail investors have a very high level of confidence. FPI flows have been very volatile. L last week, one day, it was minus 500, and then we saw a plus 1000, and then a minus 10,000; next day we saw plus 2000, again the next day minus 5,000. So, there is a lot of volatility in the FPI flows and these kinds of outflows are generating this volatility.So, basically, what it is showing is that the market anticipates that the journey will not be very smooth. But the second very big part of what the market has really shown us is that there are dip buyers who come in whenever the market reaches X levels and slowly the range of the market has been moving up. So, we look out for higher lows and higher highs and slowly the markets consolidate.On an 8-month basis, we are still about 5% away from September 24 high. It is not that we have given very great returns or markets have really run off, but they have had a chance to consolidate and normally, a down market lasts about 12 months in India on an average. It could be longer as we saw on a dotcom bubble or something or even GFC did not last more than about 14 months. So, we are getting near that. It is a well-known, well transmitted number which market players understand and now as the global risk off reduces, we could see a surge back in India, but all depends on the Trump policy, the fallout from that is the Japanese bond yields.
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FIIs on sidelines due to high valuations despite macro strength: Jitendra Gohil
The good news is that outflows have slowed significantly over the past year, which is a positive sign. "As a result, we expect heightened competition across sectors. More companies are entering new segments—be it wires, paints, cement, consumer durables, or FMCG. The government is making it easier to do business, and transportation costs are falling, which reduces overall business costs. Therefore, we believe earnings will face significant pressure, even though India's macro and growth story remains robust," says Jitendra Gohil, Kotak Alternate Asset. What is your recommendation? How do you view the current market setup, and what is your advice to investors? Jitendra Gohil: See, first of all, uncertainties are indeed present, and we're likely to see more of them—ranging from COVID to the Ukraine war, inflation, and recession risks. Over the past five years, we've witnessed heightened uncertainty. Yet, markets have continued to hit new highs because they respond well to fiscal and monetary expansion and accommodative policies. Globally, most large economies are on a spending spree. For example, Germany, which once championed austerity, is now discussing a major spending plan and expanding its fiscal balance sheet. Similarly, inflation remains high in developed markets, yet they're cutting rates. This shows that the greater the uncertainty, the more aggressive the policy response—governments and policymakers are doing whatever it takes to avoid slowdowns and recessions. This, in turn, fuels market when I look at India, we've adopted a more cautious approach—and rightly so. In case global markets falter or we face more turbulence, India has been building strong buffers. Corporate balance sheets are healthier, the current account deficit is narrowing, and inflation is well-controlled—in fact, it is now below Japan's inflation rate. India is charting its own course by sacrificing a bit of growth to achieve macroeconomic stability, and this is boosting confidence in India's macro fundamentals, which are much stronger than many global translating this macro stability and global uncertainty into earnings is a different matter. While the economy might do well and macro conditions remain strong, earnings growth could disappoint. Why? Because competitive intensity is increasing across almost all sectors, except perhaps airlines and parts of the auto sector. This is due to falling borrowing and capital costs, industry-leading RoAs, and all-time-high margins. As a result, we expect heightened competition across sectors. More companies are entering new segments—be it wires, paints, cement, consumer durables, or FMCG. The government is making it easier to do business, and transportation costs are falling, which reduces overall business costs. Therefore, we believe earnings will face significant pressure, even though India's macro and growth story remains robust. That's a very interesting take—earnings may disappoint, but competition is intensifying. We've already seen this in sectors like quick commerce, diagnostics, and more recently, wires, cables, and paints. The first two sectors are witnessing a bit of a stock price rebound, as investors believe that market leaders will eventually prevail. However, wires, cables, and paints are still languishing in the market. If we focus specifically on these four sectors, how should investors approach them? What will restore investor confidence? Jitendra Gohil: First, let's talk about valuations. Everything has to be priced right, and in India, the challenge is that these companies have reported extraordinarily high margins over the past five years. RoAs have improved, balance sheets are stronger, and valuations have skyrocketed. This leaves very little room for disappointment—small misses can lead to sharp corrections in stock prices. Secondly, new opportunities are emerging across sectors. Earlier, investors focused mostly on traditional bellwether sectors. Now, entirely new segments are gaining traction. For instance, defence has seen significant interest with new company listings. Similarly, waste management, water management, and even nuclear energy are opening up for private fund managers today have a much broader opportunity set. In the auto sector too, new listings are happening. In financial services, areas like depositories and asset management are seeing a spurt in IPOs and fresh capital means the competition is not just operational—it's also about attracting investor capital. Valuations in traditional sectors must come down. Going forward, we should evaluate these sectors through the lens of competitive intensity. It's not that all companies will see falling valuations—those that can acquire and turn around businesses will stand out. Investors should look for managements with these companies with cash are scouting for investments. Wherever they see RoAs of 18–20% and strong margins, they will enter, disrupting existing players. This is the trend we foresee over the next five years. So, investors must be extremely selective and careful while investing in these sectors. While you say earnings growth may disappoint—and I agree—the bigger concern is the lack of conviction among FIIs in Indian markets. FIIs base their strategies on macro indicators and sector performance, especially in key areas like banks and financials. But even there, earnings haven't been great. It's a tricky question, but when do you expect FIIs to make a strong comeback—or will it be left to DIIs to support the markets? Jitendra Gohil: There are two parts to that. First, FIIs typically evaluate macro stability. Earlier, the rupee used to depreciate by 3.5–4% annually. Now, it's down to about 1.5–2%, which means the return expectation from India is also coming down. This stability is due to both India's strong fundamentals and a weakening dollar. Second, while FIIs have sold over the past 12 months, from March to June they were net buyers, and July saw flattish activity. Their selling is not India-specific—it's part of a broader trend across emerging markets. So, India is not being singled ahead, FII holding in Indian equities has dropped to around 16–17%, possibly a multi-decade low. DIIs have surpassed them in the BSE 500. This shows growing domestic resilience. As India's economy moves from $4 trillion to $7 trillion, the market cap will also grow, deepening our key point: promoter shareholding in the BSE 500 is gradually declining, which improves free float and enhances India's weight in emerging market indices. All this builds long-term resilience. India's macros—currency, interest rates, inflation—are stable and the key issue remains valuation. Compared to other EMs, India is still very expensive. That's why FIIs are hesitant—they're on the sidelines, waiting for a correction. If we get one, and valuations turn attractive, FIIs will return. The good news is that outflows have slowed significantly over the past year, which is a positive sign.
