Fear makes way for hope on Dalal-Street

Mumbai: The aversion to risks in the stock market, which had surged to the highest levels in over a decade in March following the Covid-19-related worries, is steadily on the wane. The Volatility Index (VIX) — a measure of option traders’ perception of near-term risks — has fallen to 25.77 on Friday, its lowest since March 6, from 86.6 on March 24 as the rebound in the markets aided by softer concerns over the pandemic made investors and traders return to Dalal Street. The index is, however, still above its average range of 13 to 20 — the levels within which it mostly moved in the years earlier.

Brokers say the risk appetite is treading its way back as global markets have rallied on liquidity support from central banks, improvement in some economic indicators and strong participation from retail as well as high net-worth investors.

“The global rally continues to be very strong. We have seen many of the major markets now turning flat for the year. India, despite the rally, is down about 14 per cent of the year… The narrative on the corporate sector has changed from lockdown to how much you are away from normal run rate,” said Rajat Rajgarhia, chief executive officer, Motilal Oswal Institutional Equities. “Factors like GST, auto sales, fuel consumption and cement demand, the trend has improved month on month. Retail and HNI have seen strong participation in June in mid-caps and small-caps; all this indicates better risk appetite,” said Rajgarhia.

Experts said kharif sowing has been better than past trends this year and monsoon trends have been positive as well, adding to the perception of relatively lower risk, even as the Covid-19 pandemic continues. Total confirmed Covid-19 cases in India have climbed to about 6.5 lakh over the weekend.

“The risk around Covid is still there but there is a sense that economy is moving towards normalisation. Some sectors have shown reasonable strength of coming back to normal,” said Harsha Upadhyaya, chief investment officer — equity at Kotak Institutional Equities.

Data in the derivatives segment also reflect confidence in the market as put writers have become more active at the 10,300 strike compared to last week when they were most active at 10,000 strike.

“The VIX indicates that risk perception has come down. Put writing has shifted to 10,300 from 10,000, which indicates the new base for the market is at 10,000,” said Amit Gupta, head of derivatives at ICICIdirect.

The NSE Nifty ended up 55.65 points, or 0.5 per cent, at 10,607.35 on Friday, while the Sensex closed with a gain of 177.72 points, or 0.5 per cent, at 36,021.42.

The Nifty hit a record high of 12,430.50 on January 20 and dropped 39.5 per cent to 7,511.10 on March 24. However, the indices have staged a recovery of over 40 per cent since their March lows and are down by about 13 per cent for the calendar year. While the Nifty is not expected to fall below 10,300, there are some cautionary factors as well. FPIs have sold in 6 out of the last 10 sessions, in total net selling shares worth Rs 3,000 crore during this period.

Andrew Holland, CEO of Avendus Capital Alternate Strategies, said volatility levels are still high compared to 10-15 levels that were seen before the market correction that started this year. “We are also seeing lesser institutional participation and more of retail participation in this rally," said Holland.