What happens to MF exposure to DHFL debt after downgrades by CARE

For mutual funds with exposure to DHFL debt, a rating downgrade means that there will be a mark to market impact on individual bond prices, also affecting NAV

After CARE cut ratings from “AAA” to “AA+” for debentures, loans and deposits. Rating for commercial paper (“A1+) has kept under watch with developing implications.

With DHFL group companies debt mess coming under the lens, global brokerage Credit Suisse has warned that it could trigger a second wave of risk aversion in India’s debt fund industry.

Earlier, India’s debt mart faced a major risk aversion during September-October following a debt default by the IL&FS group.

The DHFL debt mess is expected to have a resonating effect as the company is among the larger borrowers from mutual funds (MFs) and their aggregate exposure stood at around Rs 8,650 crore as of December 2018. That amounts to about 0.7 per cent of debt mutual funds asset under management as of December 2018.

DHFL ALLOCATION

About Rs.7,800 crore of such debt has been purchased by open-ended MF schemes, while the rest of the money is with closed-ended funds. Open-ended funds are where investors have the highest liquidity since you can come in or go out anytime. Closed-ended funds don’t allow you to exit before maturity.

Several fund houses have large exposures to DHFL, at 2-15 per cent of total debt AUM, with some schemes having up to 30 per cent of their AUM to DHFL

dhfl mf

UTI Mutual Fund had the maximum exposure of around Rs 2,144 crore as of December 31, 2018, followed by Reliance AMC at Rs 1,488 crore, Axis AMC at Rs 771 crore and Franklin Templeton Rs 571 crore.

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Master (1)

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The DHFL issue may result into more scrutiny of credit risk in debt funds, and considering the fact that NBFC funding relies on MFs for 10-30 per cent of their borrowings, debt funds flow will see some hiccups in the coming days.

Some schemes have taken mark-to-market (MTM) losses on this exposure with DHFL paper being repriced at higher yields. Credit Suisse warned if this continues and leads to redemption pressure, it may cause a second wave of risk aversion in domestic debt funds and volatility in their flows.

In the open-ended space, about Rs 300 crore of exposure is to Aadhaar Housing Finance, which will now become the responsibility of Blackstone. DHFL is a Rs 6,200 crore of debt exposure for funds.

Debt raised by firms like DHFL is repaid within a few months (or years) as per maturity. If DHFL at some point is not able to honour its obligations, then that will be default like situation eg. IL&FS. However, such a situation may not really happen.

As a precautionary measure, some mutual funds may, however, write down the value of the bonds.

There is also the option to segregate or side-pocket bad assets so that the impact of the downgrade does not lead to panic redemptions. However, side pocketing can happen only in extreme cases, and that too when there is a default-like scenario.

Existing investors – For mutual funds with exposure to DHFL debt, a rating downgrade means that there will be a mark to market (MTM) impact on individual bond prices. This means there will be an impact on the Net Asset Value (NAV) of the funds.

In some cases, the MTM impact of the first series of downgrades on bond prices can be as significant as 25%. This means a 5% position for the bond in a fund would result in a negative 1.25% MTM performance attribution due to bond holding.

Any redemption from such funds at this point would result in an actual booking of losses.

Keep an eye on schemes with 10-33% exposure to single DHFL security.

Such examples are DHFL Pramerica Ultra Short Term (Dewan Housing Finance Corpn. Ltd. TR-1(30-Apr-19), JM Income (Dewan Housing Finance Corporation Ltd. SR-I CATG III & IV 09.10% (09-Sep-19)), JM Short Term Fund (Dewan Housing Finance Corporation Ltd. SR-I CATG III & IV 09.10% (09-Sep-19)), JM Low Duration (Dewan Housing Finance Corporation Ltd. SR-I CATG III & IV 09.10% (09-Sep-19)), Baroda Dynamic Bond (Dewan Housing Finance Corporation Ltd. SR-III CATG III & IV 09.25% (09-Sep-23)), DHFL Pramerica Medium Term (Dewan Housing Finance Corporation Ltd. SR-II CATG III & IV 9.15% (09-Sep-21)), DHFL Pramerica Floating Rate (Dewan Housing Finance Corporation Ltd. SR-I CATG I & II 09.05% (23-Sep-19)), DHFL Pramerica Low Duration (Dewan Housing Finance Corporation Ltd. SR-I CATG I & II 09.05% (23-Sep-19)), BNP Paribas Medium Term (Dewan Housing Finance Corporation Ltd. SR-I CAT I-IV 08.90% (04-Jun-21)), BOI AXA Short Term Income (Dewan Housing Finance Corporation Ltd. CATG I & II SR-IV 9.1% (16-Aug-19)), Tata Medium Term (Dewan Housing Finance Corporation Ltd. SR-I CAT I-IV 08.90% (04-Jun-21)).

 

Note: Mutual fund investments are subject to market risks read all scheme related documents carefully.

DISCLAIMER:

No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor before making any actual investment decisions, based on information published here.

 

INDIAN MARKET CHEERS ON FED RATE DECISION

RBI may cut interest rates before next policy review

The Indian markets are likely to cheer the US Federal Reserve’s decision to hold rates at zero for more time. The benchmark Sensex could open gap up however the gains could be capped as the stock markets had largely priced in for a status quo by the US central bank.

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Equity markets had assigned just 32 per cent probability for the first interest rate increase rise since 2006 by the Federal Reserve. And could have seen a drop had the Fed hiked interest rates, which could have sparked capital outflows from emerging markets like India into the developed markets

Market players believe that the Fed will wait until December to raise rates. Interest rates in the US have been near-zero since the 2008 global financial crisis. The low rates or easy money has seen riskier markets rally over the last few years

Selection Criteria of health care insurance

In the field of insurance there are number of similar terms often perplex investors. Even health insurance segment itself is subdivided by many specific concept s such as mediclaim , health insurance, critical illness insurance with its own features dealing into specified areas many time lead to confusion.

In spite of its complexities that is a must thing for every citizen with alarming level of increasing in health related problems & whooping levels of increasing health care cost in India. According to the survey conducted by international insurance consulting firm Towers & Wadson in the year 2011-12 alone health care cost in India increased by 13.25%.

Health insurance is often misunderstood with mediclaim policies which covers hospitalization & treatment towards accident & pre specified illnesses only, where as health care is more broad concept includes comprehensive health cover against illness excluding critical illness. However some policies cover some (certainly not all) critical illnesses in health insurances. It is more comprehensive in nature as it covers pre & posts hospitalization expenses, compensation of loss of income, ambulance charges etc.

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Critical analysis of the policy document is must in the field of insurance & following points will help the investor in selecting the right policy.
If the insurer & family members are healthy, young with no chronic ailments, no hospitalization history then choices are available for comparison with multiple options & decide about the insurance cover, stand alone insurance or family floater .Where as if the insurer is in his 40 & above or with medical history of any family member then certainly options about the insurance small amount of cover is limited & especially opting family floater remains difficult ( & even not recommended).

Cap on hospital room rent. Many health insurance policies having a clause of room rent cap that means insurer is eligible to claim expenses only up to the room rent costing below this cap. This clause is most important & needs to understand in detail. The concept of room cap is not restricted only up to hospital room rent but is applicable to all the hospital expenses & treatment such as ICU, operation, doctors charges. Policy holder with this clause get the claim settlement or reimbursement as per his policy in proportionate of his room rent only. So it is always advisable to opt the policy with private room rent eligibility or policy with no room rent cap than the policy with room rent cap.

Policies also have a clause of Sub limit cap that is a limit on particular expenses such as ambulance charges (2 to 3 % of the assured sum),limits of specified surgeries as 50 to 60% needs to check carefully.

Insurance companies or TPA’s with high claim settlement ratio, minimum settlement period, along with the in house claim settlement process or through TPA in insurer’s city is more preferable.

Insurance companies having strong hospital network with cashless facilities is always better than reimbursement facility where insurer needs to pay first if he opt the hospital out side the network. This problem comes especially when the companies hospital network is weak or good hospitals with good doctors are not in the network, or network hospital far away from the insurer’s home. This problem is more visible in tire 2 & tire 3 cities.
Some companies or some policies do not cover the pre-existing ailments & remain permanently excluded. So insurer needs to check it very clearly. For the same true & factual disclosure of pre existing dieses by the insurer is equally important. In complex cases insurer should communicate in writing with the company & maintain that communication for future references. Some companies put a waiting period clause & after the completion of that period its claim becomes admissible.

Some Companies have a age limit of policy renewal i.e. insurer can renew his policy only up to his age 70 to 75 years, where as some companies have a life time renewal facility & better to go with such companies because what is a use of such policy or company not extending the insurance cover when it is required most.

For planned surgeries & hospitalization process some companies are providing free consultation, it is in the interest of insurer as it also works as a second opinion & helps in its claim settlement.

After care full analysis of the above points then the issue comes of premium & its affordability. It is also a matter of our willingness to pay out of our pocket for better services.

All eyes on the Fed

The eyes of the world will be on the Federal Reserve this week and the question of whether US policy makers will finally begin raising interest rates.

US interest rates have been near-zero from late-2008, and now markets are expecting that the Federal Reserve will effect its first rate hike in the upcoming meeting on September 17.

Long-term investors should note that historically, though gold prices have dropped in the run-up to a Fed rate hike, they have strengthened after the first or second rate hike — behaviour that shows that traders usually buy on rumours and sell on news.

An unexpected drop in the jobless rate to 5.1% and an upward revision in second quarter growth to 3.7% support calls for a hike as the labour market tightens and utilisation is at its best level since the global financial crisis.some believe the US economy is healthy and ready for monetary tightening.

But, there are two arguments for the central bank to defer its rate hikes too. One, after the Chinese market crash, there has been chaos in financial markets across the globe.

The Reuters CRB Commodity index has recently dropped to levels last seen in 2003 with the prices of oil and base metals plummeting. Equity indices are down about 7-15 per cent year-to-date and many central banks are resorting to monetary easing.

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With deflationary risks higher now with a slowing China and downside risks to oil prices, a rate hike now may invite more problems for the Fed. In the recent survey by University of Michigan, the consumer sentiment reading fell to 85.7 down from 91.9 in August.

Over a dozen of them, including China, Thailand, South Korea, Australia, Russia, Poland and India, have cut rates so far this year.

Reserve Bank of India (RBI) Governor Raghuram Rajan had said on many occasions that India is better prepared for a US tightening.

“The market has already factored in a 25 basis points rise by the Fed. Some other uncertainties have also already got priced in. The Fed’s guidance would be key for further moves.

Two, inflation — a key factor in rate actions — in the US is still low. In July, it was reported at 0.2 per cent — well below the Fed’s 2 per cent target rate.

The currency market believes the rupee might not see much volatility even if the Fed begins raising the rates. “The rupee will move in line with other currencies. The rupee is still overvalued in Real Effective Exchange Rate terms. Barring further negative news from China or continued negative emerging market sentiments, impact of Fed’s action on the rupee might be limited beyond the initial knee-jerk reaction,” said Badri Nivas, head, local market treasury, Citi India.

Cabinet approves Gold Monetisation, Bond Schemes

Government in its effort to keep the gold demand in check has announced couple of schemes

i.e.1). Sovereign Gold Bonds & 2). Gold Monetisation scheme

Here are the highlights:

RBI to issue gold bonds on behalf of the government

The government will declare interest on the bonds from time to time

Maximum limit of 500 gm per person per year in gold bonds

People can buy gold bonds instead of physical gold via gold bond scheme

Gold bond could be for minimum of 5 to 7 years

Gold bonds will pay interest and its price will also be linked to gold

Gold bonds will be done by banks, NBFCs and other authorized entities

Cabinet has also approved gold monetisation scheme

Anyone who has gold as idle asset can deposit them

Deposited gold to earn interest

India imports about 1000 tonnes of gold and these schemes will help to reduce imports


Gold Monetisation Scheme.

Historically investment in gold is always popular because of its easy to buy & sell, easy liquidibility, status symbol, easy to transfer from one generation to another with out any legal process i.e. gift deed or any thing & more importantly easy way to convert black money through its investment in gold.

There is an estimate of country’s house hold stock of gold is approximately 20,000 tones worth Rs:-60 lacks cores, 2 ½ times more than US Fed’s gold reserves of 8000 tones.

Successive govts through different schemes have tried to bring that stock in circulation. This govt too has tried to address the issue through new scheme i.e. Gold Monetisation Scheme with more practical terms & conditions.

Working of the Scheme.

A person shall take a gold in any physical form i.e. coin, jewelry, bar to the specified agency or banks. Bank or agency will check the purity of the gold, open a depository’s metal account there end & the same quantity of gold will be transferred to this account while gold deposit certificate would be issued to the depositors. Interest on this account will start from the date of deposition similar with the bank’s fixed deposits. Depositors will have to comply with the KYC norms.

As the metal account is created by depositor’s gold as a principal, interest too will be paid in gold like 102 or 103 grams for 100 grams of principal.

This will replace both existing schemes i.e. gold metal loan account & another one offered through SBI remained unpopular because of there impractical conditions such as minimum quantity requirement of 500 grams @ 1% interest rate.

While in this scheme the minimum quantity requirement is 30 grams with maximum limit if 500 grams per annum per entity for minimum period of an investment 1 year.

Depositor’s shall have an option to take a gold or cash on completion of there investment period but its choice has to be made in the beginning at the time of opening account i.e. gold deposition.

Interest rate for this scheme would be bit at higher side i.e. @ 3 %.

However from depositors point of view melting of jewelry is inevitable part of this scheme is an emotional issue for many people.

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Sovereign Gold Bond

Being a largest buyers at the international gold market Indians gold obsession is well known. It is a second largest import item after oil with approximately 800 to 1000 tones per annum.

As per govt research approx. 350 tones of gold is purchased in the form of coins & bars. Through sovereign gold bonds govt wants to tap these investors investing purely for the investment purpose & as per cabinet note the govt is planning to raise Rs:-15000 cores through these bonds.

These bonds will be issued in 2,5,10 grams of gold for the minimum period of 5 to 7 years. However it will remain tradable with the option of redemption in the stock exchange & investor will get the market value of gold at the time of redemption. But for investors it always better to remain invested for long term i.e. 5 to 7 years which will protect them from the medium term volatility in gold prices.

It is an effort to create an alternate financial asset & an option for purchasing gold in physical form. It is also a better option to gold exchange traded funds. The gold ETF after receiving an investment from the people purchases a gold from the market after deducting expenses up to permissible limits & stacked the purchased gold in bank lockers while in these gold bond actual purchases & deduction of expenses shall not require.

Short term investment may carry a risk of market volatility & price fluctuation compare to long term investment & is a good option like parents wanting to buy jewelry for there daughters.

These bonds will attract the capital gain tax same as it happens in case of sale of actual gold.

Profitability of investment in gold bonds is purely based on the presumption of scarcity, popularity, demand & supply of this precious metal but also carries a risk of price correction because of its inter-linking with many international issues, policies & polities as well.

Why DII are Buying when FII are selling ?

Chinese equity markets are smashed, European and U.S. markets are distressed, and those in the Japan and elsewhere in Asia are rocked. It is very obvious, equity markets in India can’t run up in isolation. That decoupling hasn’t happened yet. In such a scenario U.S. Dollar is being considered very safe and has been attracting investors. This is why investors are encashing profits in equities and preferring to stay in USD for a moment; at least unless picture becomes clears.

Speaking about India, last week of August was a devastating one. Overvalued Indian market fell like a house of cards as contagion of Chinese gloom spread everywhere; after Asia’s largest economy pegged its currency down. While FIIs exited India; mutual funds came to the rescue. Only time will prove, who’s dumb and who’s smart.

FIIs might be exiting India for reasons given below

• China has been facing serious structural problems. As slowdown fears in China appear to be more serious and well-accepted now, FIIs are believed to have become risk-averse all of a sudden and thus have been withdrawing from all major emerging markets.

• What looked certain till now, as far as action of Federal Reserve (Fed) on policy rates in the U.S. is concerned, has started looking uncertain after China devalued its currency.

FII VS DII Activity for the month of August and september

FII VS DII SEP

FII VS DII AUGUST

• With 7 odd percent of GDP growth, India still remains one of the most rapidly growing economies. However, despite of showing noticeable improvements, Indian economy is well-short of meeting expectations of global investors.

• It seems lacklustre performance of corporate Inc., quarter after quarter, has finally made FIIs believe that India may take a long to recover in true sense. Valuations appear extremely expensive.

• Logjams in Parliament are obstructing the passage of some key bills which gives a feeling that there is no consensus within India on the reform agenda

In simple words, FIIs had invested heavily in India on expectations that it will be a rewarding investment destination. However, they appear to be worried about prospects of Indian markets now under fast changing environment.

Let’s now see how mutual funds are reacting to the changing situation

Taking a contra view, mutual funds aggressively invested in equity markets in August. Net investments by mutual funds amounted to over Rs 10,500 crore in August while the total in first 8 months of 2015 was about 47,000 crore.

What makes mutual funds bullish on India when FIIs are selling in India and global brokerage houses are reducing targets of leading Indian Indices?

Here are the factors…

• Mutual funds have been witnessing huge inflows from the retail segment which is why they still remain net buyers

• Taking advantage of downbeat sentiment, fund houses might have done some value buying

• Although, by and large, mutual fund houses held low cash in their portfolios under diversified schemes, there is a possibility that, money they collected through New Fund Offers (NFOs) launched recently, may have found ways in the market

• Retail investors look upon recent market fall as an opportunity rather than a threat and may have invested aggressively.

Source PFN

Amtek auto MF Holdings

Amtek Auto’s debt is estimated to be around Rs 17,661 crore. The stock has plunged 88% from its peak in a year ( i.e. Rs. 251/- High and Rs. 25/- low ) and Amtek has warned about its failing financial health.

More than 80 investors, including Axis Bank, Karur Vysya, Syndicate, Corporation Bank and some pension funds, stare at a knock of at least Rs 800 crore in their books in the September quarter as beleaguered Amtek Auto may fail to reschedule its payments.

Amtek auto MF Holdings ended July 2015

amtek

Amtek Auto on Friday i.e. 14 th Aug. reported a net loss of Rs 157.76 crore for the third quarter ended June 30. The company had posted a net profit of Rs 86.08 crore in the same period of the previous fiscal.

The woes of Amtek Auto have been gradually piling up with its credit rating downgraded in September 2014 to AA, from AA+ by rating company CARE. The rating was further downgraded to C in August, from A +.

In May, Amtek Auto agreed to buy Germany’s Rege Holding GmbH. It was at least its 19th acquisition. The group manages some 63 production facilities in several countries with a focus on casting and forging business mainly for the automobile makers.

Pune’s real estate unsold inventory reaches to 2.8 lakhs units

Pune real estate seems to be hit badly by slowdown as demand lowered in the last one year. According to Gera’s Pune Realty Report for January – June, 2015, the city has witnessed unsold stocks (inventory with developers for sale) of 280,913 units across 3067 projects from 245,639 homes over 2761 projects in the last one year. The unsold inventory is valued at Rs 48,526 crore. Some of the main reasons for the slowdown include a supply-demand gap.

Gera’s Pune Realty Report findings

3,067 live projects tracked after a listing exercise covering a radius of 30 km from Shivajinagar.

Slowdown in price appreciation from 12.47 per cent for June 2012 – June 2013 to 10.03 per cent from June 2013 – June 2014 and down to 3.33 per cent for June 2014 – June 2015.

The Budget Category (where prices presently are below Rs 4,247 per square feet) has seen the highest increase of 125 per cent in unsold inventory from 18,019 unsold units to 40,814 unsold units.

Only 24.55 per cent of the stock added between January 2015 and June 2015 is within PMC limits, indicating that most of the incremental stock is added outside the PMC limits. This will lead to declining revenues by way of development charges and premiums for the PMC.

However, prices will not see any significant correction unless something drastic happens.

Regulatory impact will further push prices up when the time is right (Real Estate Regulatory Act, Maharasthtra Housing Act)

According to the report, the gross stock has significantly risen by 14.36% in the past 12 months with a net addition of 35,324 homes across 306 additional projects, the unsold stock (inventory with developers for sale) in the same period has shown a steep jump of 36.85% from 66,350 homes a year ago up to a record 90,799 homes at present. The unsold inventory is valued at Rs. 48,526 crore in pune.

The value of unsold Flats across the top seven cities of the country at the end of June has been estimated at a whopping Rs 4 lakh crore, with few signs the inventory will be cleared anytime in the next five to seven years. At 7.5 lakh, the number of flats in the mid-priced range is virtually the same as it was at the end of March, this year, which means sales have come to a standstill.

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In addition, there are 50,000 luxury apartments, priced at an estimated Rs 1 lakh crore, lying unsold in Mumbai alone. “Developers are now reducing the sizes of the apartments to make them more affordable.

PropEquity estimates there are close to 53,000 unsold apartments priced over Rs 1 crore in the Mumbai Metropolitan Region (MMR) alone. For the remaining seven cities together, this would be over one lakh units.

The number of quarters required to exhaust the current unsold inventory in Guragon, has risen to two years from three quarters in 2012, estimates Bank of America Merrill Lynch. The brokerage believes the absorption rate in Noida today at 3.7% is the lowest in the last eight years. This is because investors who held the housing market seemed to have deserted it given poor visibility on timely delivery.

Five debt repayment strategies that could backfire on you.

Being neck deep in debt is never a happy feeling. Unfortunately, there is no magic wand that can make you debt free. If you are desperate to get out of debt you will have to cut corners and be patient till you repay your dues.

Quick fix solutions almost never work in life and it is no different for debt repayment either. Here are five debt repayment strategies that could backfire on you.

1) Dipping into your retirement savings

There is a reason why financial advisers maintain that you must start saving for your retirement as soon as you start earning. If you have been doing so little by little and building up a corpus to serve you well in your golden years, you should leave it undisturbed under all circumstances till you reach your retirement age. Paying off unsecured debt with your retirement savings is a bad idea and your entire financial plan may go haywire because of the same.

2) Milking your home equity

When you are in debt and have a roof over your head to call your own, you may be tempted to refinance your home or avail of a new loan at an amount that is higher than the old loan. For instance, if the value of your property is Rs 20 lakh and you owe your lender Rs 13 lakh, you can refinance Rs 15 lakh and take out Rs 2 lakh in cash.

You may think of your home equity as a temporary lifeline, but you are actually exposing yourself to a higher risk in such a case.

In case a mishap results in the stoppage of your regular flow of income, you may stand to lose your home.

Trading one debt for another may only be justified in case you are looking at re-adjustments in your equated monthly instalments, or EMI, or you want to avail of a lower rate of interest. Thus, using the refinance route to pay off your unsecured debt is never a good idea.

3) Transferring your balance to a new credit card

This is another case of a debt swap that people think will help them get out of debt faster. A credit card issuer may be luring you with “lower rates” but keep in mind that those lower rates may be introductory rates to lure in a customer and are applicable for the first few months only.
Besides, there is a processing fee that is usually 1-2% of the total outstanding amount being transferred onto the new card.

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You may think that you are debt free when you receive a cheque from your new card issuer to clear the loan of your previous card issuer, but that is in fact a myth. Your debt is only transferred.

If you cannot curtail your spending habits and continue to be reckless with your new card, you will land up with an unmanageable debt pile once again.

4) Borrowing money from friends or family

So you have a very supportive family on a group of friends whom you can count on for just about anything in life. Good for you! But do bear in mind that when money gets in the way of relationships, even the best of relationships can get sour.

Think very carefully before asking your support system for money to bail out of your debt pile.


5) Filing for a settlement

When nothing seems to be working and you are at your wits end, you may decide to “settle” your loan or credit card debt. Your bank will accept the settlement of your loan and will not harass you for further installments, but it does have repercussions. The price you pay will show up in your Cibil report and impact your Cibil score negatively.

Besides, this settled loan or credit card debt will affect your Cibil score for the next seven years and remain on your Cibil report for ever, thus making it impossible for you to avail of any kind of credit facility in this interim.

No bank would willingly give a loan to you if you have settled your loan or credit card dues once.

As you can see now, these hacks that you thought could get you out of a debt trap, could actually be akin to tying a noose around your neck.

Instead, take a practical approach and see if you can liquidate some assets or investments to pay off your dues. If that does not seem possible, take up some extra part time jobs that will supplement your income. Keeping your head down and working hard through this period of crisis will see you through.

This article is authored by Rajiv Raj.

Meaning of the term Volatility Index ( VIX ) / Fear Index

Volatility Index (VIX) is a key measure of market expectations of near term volatility. As we understand, volatility implies the ability to change. Thus when the markets are highly volatile, market tends to move steeply up or down and during this time volatility index tends to rise. Volatility index declines when the markets become less volatile. VIX is sometimes also referred to as the Fear Index because as the volatility index (VIX) rises, one should become fearful or I would say careful as the markets can move steeply into any direction. Worldwide, VIX has become an indicator of how market practitioners think about volatility. Investors use it to gauge the market volatility and make their investment decisions.

NSE Volatility the VIX index has reached the level of 20 and above. Given that market experts are raising fears of a major correction in the coming days. So, traders need to be cautious before trading in the stock market .

What is the VIX indicator

VIX is the indicator that tells how many and what kind of market volatility. VIX level of below 20 is seen as stability to the market, while a figure above 20 indicates high volatility. NSE VIX is around 28.13 on 24th August. Nifty dropped 491 points on August 24 was closed when the VIX 17 was more than 28, Change in percentage is 64.36 % .

NSE VIX on today is 28.71 ,Nifty dropped nearly 200 points, Change in percentage is 16.76 %.

How does calculate VIX

The index of the current month and next month, calls and puts increase in average premiums and discounts are determined based on the movement of the VIX Index.

In India, value of Vix has been computed by the NSE since November 2007 based on the out-of-the-money (OTM) option prices of the Nifty. It has touched a high of 85.13 and a low of 13.04. As it is mentioned in percentages, value of Vix can never be below zero or more than 100.

Historical data indicates that India Vix has a strong negative correlation of negative 0.8 to the Nifty. This means that every time Vix falls, Nifty rises and every time it rises, it means that a fall is imminent. India Vix touched a value of 85 percent, a few days before Nifty touched a bottom post the Lehman Crisis.

India Vix has a mean of 26.65 and a median of 23.83, these figures are important for option writers and traders since Vix has a tendency to revert to the mean.

india vix

What experts say

• Market experts say that the decline in the short term and could deepen. Accordingly, the index that measures the technical charts show that in the short term Nifty breaks below 7800 is visible. So investors should include in their portfolio of IT and pharma stocks because these stocks have always considered defensive. The sharp fall in the stock market during the staying and they usually do not see a sharp decline.

• VIX is raising fears of a sharp fall in the growth markets. Also forthcoming credit policy of RBI traders in the market are hedge their positions. IT and FMCG purchases are seeing right now, it is pointed out that foreign investors out of stocks aggressive positions are shifted to defensive stocks. This large decline in the market because the market will not go out of the money from one sector to another sector is shifting.
On fears of market volatility VIX rises.

• Find VIX moves from the fact that, before the 2014 general election results was a risk of large fluctuations in the market, the VIX was at the level of 40. August was a VIX level of 13.53, which is now approaching the level of 24. From this perspective, it is faster to 43.65 per cent. The Sensex and Nifty have broken more than 4 per cent in August. This situation indicates that the current correction in the market index (fall) could see.

VIX-year upper level

• Nifty and Sensex 4.5 per cent this year has broken. Smallcap index has declined two per cent. However, Vix has climbed 43 percent in the past month, and this year are trading close to the upper levels. Vix shows that short-term risk.