India VIX or volatility index is reflective of the market sentiments concerning volatility in the stock markets in the near term. Thus, in a scenario when the stock market is witnessing high volatility, the India VIX tends to increase while in the other case when the stock market is not as high as previous levels, India VIX declines. Furthermore, the index highlights the degree of volatility expected for the next 30 calendar days.

Computation of India VIX

India VIX is computed using the order book of the underlying NIFTY options by the National Stock Exchange. Calculated in annualized percentage terms, the value of India VIX takes into account best possible bid-ask quotes with lower spread of near as well as next month NIFTY options contracts that are traded on the F&O segment of NSE.

India VIX- A tool to take more informed investment decision for stock market investors

In times when the trend in the stock market is hard to predict, VIX can be considered by investors for their investment decisions. VIX that on the basis of historical data has proved to be a robust tool is capable of identifying or depicting likely uncertainties in the stock market in the near term. Furthermore, VIX known to share a negative correlation with the NIFTY index is also known as a fear index and the trend likely to be witnessed in the market in the not so distant future can be determined with its help.

Interpretation of India VIX value

The range of India VIX differs in different scenarios, in the bull market it is 18-24%, in the bear and range-bound market condition the VIX range is 25-40% and 16-21% respectively.

An India VIX value of 29.42 seen on 21st August'2013 is the highest recorded in 17 months and the value is indicative of the likely changes of the order of 29.42% on an annualized basis over the next 30 days.

High values of the VIX is representative of the sentiments of anxiety, fear and stress among market participants. It is in this scenario that investors can find a best entry price for several stocks. So, the general inference drawn by several analyst is that investors should go for a buy when VIX is high and sell their holdings when the value of VIX goes down.

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