Fear is back on Dalal Street... Is it time to buy?

MUMBAI: A spike in Dalal Street’s ‘fear index’ may turn out to be a boon for bargain-hunting investors. Should you be greedy when others are fearful? Warren Buffett may not be off the mark. This period of heightened volatility – marked by ups and downs in share prices – presents buying opportunities for long-term investors, market players said.

According to analysts, the market is under pressure due to uncertainty over the election outcome and selloff by foreign investors. The India VIX (volatility index) closed higher for the 11th consecutive session on Thursday. The so-called fear gauge has jumped nearly 80% from a low in April.

“There is speculation regarding election results… The India VIX spike indicates that high volatility will persist for some time. The spike is due to rising volume of options trades. Many investors are buying put options to protect their portfolios in case of an unexpected election outcome,” said V K Vijayakumar, chief investment strategist, Geojit Financial Services.

From a nine-month low of 10.2 on April 23, India VIX jumped to 18.2 on Thursday – the highest level since Oct 2022 – ETIG data showed.

“Govt campaigned strongly to gain a higher number of seats compared to the previous term but the (voter turnout) data is not in line with BJP’s assumption… A high VIX reading may trigger short-term bearishness,” said Prashanth Tapse of Mehta Equities.

An increase in volatility during elections is not unusual, but the sharp rally in Chinese stocks in the last month has accelerated selling by FPIs. “Foreign investors are selling in expensive Indian market and buying in cheap Chinese markets,” Vijayakumar said.

While most investors are moving to safeguard profits amid growing uncertainty, a section of investors with a long-term view, is planning to ‘buy the dip’. Manjiri Satam (27), a data analyst, said, “I hadn’t bought or sold any stocks since the lockdown ended two years ago, but now I have started to shortlist large-cap stocks that I want to add.”

“Investors should focus on the bigger picture and stock fundamentals. Mutual fund investors can use SIP and STP options to get the best out of this volatility,” said Rajesh Bhatia, chief investment officer, ITI Mutual Fund.

According to analysts, NDA retaining power is the base case scenario.