In an unusual pattern, India’s stock gauge moves in sync with volatility index for days

In a rare occurrence, India’s benchmark stock gauge and its volatility index have moved in tandem for seven straight days. To some market watchers, that signals traders are less concerned about further declines in large-cap shares.

The NSE Nifty 50 Index has lost 14% from its peak in September as investors grew skeptical of the market’s steep valuations, with corporate earnings and economic growth starting to disappoint. In recent days, the India NSE Volatility Index also slid, on falling demand for options betting on moves in the benchmark equity gauge, which comprises mostly India’s heavyweights.

“The lack of hedging signifies expectations of more stability in large-cap names,” said Sonam Srivastava, founder and chief executive officer at Wright Research in Mumbai. She added that bigger stocks may fare better should the market fall further, and that her company last week switched to hedges on mid-cap stocks rather than the Nifty 50.

Smaller and mid-cap shares have tumbled more than the broader market since the Sept. 26 high, with Nifty gauges tracking them down more than 18%. While investors have so far remained largely bearish, some firms have turned positive recently.This week, Citigroup Inc. raised its rating on Indian equities to overweight from neutral, citing “meaningful upside” amid “less demanding” valuations.

Earlier this month, Invesco strategist David Chao called the shares good long-term structural bets, while Morgan Stanley expects the market to resume outperforming peers as the soft growth patch in India’s economy is “behind us.”

The India VIX fell further on Thursday, while the Nifty 50 was little changed. The last time the two indexes moved in the same direction for seven days was in September 2021, when the equity gauge was about to reach a high it then struggled to surpass until a year later.

The unusual pattern between the Nifty 50 and India VIX has happened between 30% and 40% of the days for most of the years since the volatility measure started. In the US, the S&P 500 Index and Cboe Volatility Index move in opposite directions about 80% of the time, and it can be a warning sign when both gauges fluctuate in unison.

While in Europe the dynamics are similar to those in the US, they’re different in Hong Kong, where traders chasing the rally have recently pushed up the local gauge of options prices: The Hang Seng Index and HSI Volatility Index swung the same way on a record 54% of the days last year, with the proportion for 2025 already at more than 60%.