The Indian benchmark equity index (Nifty50) sky-rocketed to its all time highs yesterday. It surged to a fresh all-time high today as well (first time ever above 23000). Market capitalisation of all listed companies in India crossed $5 trillion, fifth country in the world to scale that coveted mark. It took just 6 months to add the last trillion. It had taken 2.5 years to inch from $3 trillion to $4 trillion and 4 years to graduate from $2 trillion to $3 trillion (just to get the historical perspective right). 

Great. Everything looks hunky dory………..till one glances at India VIX. 

VIX is a volatility index which measures market’s expectation of price volatility in the near term. India VIX is based on Nifty Index option prices. In simple terms, it is a measure of risk. It is often looked upon as a fear index and is usually inversely correlated to the benchmark Index. 

Have a look at the chart below. India VIX is coloured in blue and scaled on right y-axis while our benchmark Nifty50 (in the usual green and red candlesticks) is scaled on the left y-axis. The correlation between India VIX and Nifty50 is given on a sub-chart below in yellow colour. As is evident, the correlation line is primarily in the negative territory (mostly below -0.30: horizontal pink line in sub chart), signifying the inverse relationship with Nifty50. During last week Apr’24/first week May’24, Nifty declined and India VIX surged higher (following the usual negative correlation). Since mid May’24, Nifty recovered and has surged to record high levels and India VIX (surprise surprise) continues to rise. Markets are optimistic as well as fearful. An oxymoron.