India VIX Set for Fourth Month of Declines as Uncertainty Ebbs

The benchmark gauge of Indian option costs stayed on course for a fourth month of declines, reflecting waning demand for protection from market swings.

The India VIX Index rose 0.8 percent at the close in Mumbai before the expiry of monthly derivatives contracts on Thursday, paring this month’s decrease to 13 percent. The stretch of its monthly declines is the longest since March 2009. The Nifty 50 Index slid 0.4 percent to 7,896.25.

The VIX has lost half its value over the last four months as the Reserve Bank of India cut its policy interest rate in September and the Federal Reserve increased U.S. borrowing costs this month. Both decisions were widely anticipated. Traders replaced about 54 percent of their December Nifty futures with future-month contracts, data available as of 3:52 p.m. show. Derivatives are India’s most popular market segment, with average daily turnover in futures and options this year amounting to more than 12 times that in stocks.

“Traders are building fresh positions for January,” Gaurav Bissa, a derivatives analyst at LKP Securities Ltd. in Mumbai, said in a phone interview. “The VIX traded in a range for the past few months as markets calmed down and uncertainty ebbed. We expect the VIX to rebound from lows next year.”

Turnover Jumps

Average daily turnover in futures and options on the National Stock Exchange was nearly $40 billion this year, a 27 percent increase over 2014, according to data compiled by Bloomberg. Trading in cash equities on the NSE and BSE Ltd. was $3.2 billion, the data show.

“VIX is trading near its low and is expected to rebound in 2016,” Supreeth Shankarghal, who oversees $500 million as director of hedge fund Novo Investment Trust in Bengaluru, said by phone. “Investors are buying January futures amid expectation that overseas funds will deploy cash in the new year.”

The Nifty has fallen 4.7 percent this year, poised for its first annual loss in four years after foreigners pulled more than $3 billion from local stocks since July. The gauge trades at 15.3 times its projected 12-month earnings, compared with a multiple of 11 for the MSCI Emerging Markets Index.

Nifty futures declined, with those expiring on Thursday and in January both 0.3 percent lower. Among options, the price of December calls with a strike price of 8,000, the most popular by number of outstanding contracts, plunged 77 percent. The 7,500 put, the second-most popular by open interest, slumped 58 percent.

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