India VIX surge keeps many wary ahead of RBI policy

Last Updated: Thu, May 02, 2013 09:41 hrs

NSE's volatility index, or India VIX, adds 10.7 percent to 16.72, heading for a third straight session of gains, reflecting the rising volatility ahead of the central bank's policy review on Friday.

India VIX measures the cost of protection via options and is seen by some investors as a "fear" gauge.

As of 2:09 p.m., India VIX was up the most in a day since September 17, 2012.

The India VIX is rising at a time when the Nifty crossed the psychologically important 6,000 level, the first time since February 4, keeping many wary of profit-taking on policy day, dealers said.

The Reserve Bank of India is likely to cut interest rates on Friday for a third time this year, drawing comfort from a fall in inflation as it seeks to help lift the economy from its lowest growth in a decade, according to a Reuters poll.

As of Tuesday's close India VIX had a negative correlation of 61 percent with NSE stock index.

"The risk for long positions is increasing as depicted by India VIX, people are buying more puts than calls," said AK Prabhakar, senior vice president at brokerage AnandRathi.

If Nifty does not close above 6,035 on Friday then it can decline till 5,775 level, Prabhakar added.

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