It’s almost 2019 – Is Volatility Back?

As we round up the trading year of 2018, we’re found asking ourselves where is volatility headed into 2019?

If there ever was a volatility killer, 2017 staked its claim to be one of the greatest of all time. But 2018 saw some menacing drives up in the Volatility Index $VIX with the now infamous February $XIV blow-up.

CBOE $VIX

Traders on the Indian National Stock Exchange (NSE) saw a slightly different picture. The events of February did have ripple effects on our markets, but then our very own $INDIAVIX didn’t quite react in the same proportions. This is relative to the levels of the volatility index that we saw from our own self-induced crisis of demonetization. So although our markets did see a selloff along with the world over, the $XIV issues seemed to have been contained within the locales of the specific funds involved.

$INDIAVIX

But things got far more interesting in September/October 2018 with internal crises led by the several factors on the ground. We haven’t yet seen consensus emerge on the root causes behind this round of increase in volatility.

Factors ranging from uncertainties related to Indian Assembly Elections in December 2018 to regulatory changes in how the exchanges charge margin for derivatives trades to even some conspiracy theories of deliberate induced selling have done the rounds. But by far the liquidity crises brought about by the near failure of one of India’s largest infrastructure companies, IL&FS is the clearest contender for the root cause of this surge in volatility.

Whatever have been the reasons behind this recent surge, our view is that these volatility levels are here to stay as we move into 2019. We see $INDIAVIX forming a base around it’s longer term average of 15-17 as we will witness another sharply divided election campaign for the Indian Parliament in 2019. 

Yes, Volatility is back!