Volatility could resurface soon, as US President Donald Trump hasn’t shown any signs of extending his 90-day pause on reciprocal tariffs beyond 9 July.
“Traders may start reacting as early as Friday, with increased activity in the VIX index,” said Shrikant Chouhan, head of equity research at stockbroker Kotak Securities. “Unless there is a delay or reversal in the tariff decision, volatility could spike, potentially reaching levels around 19-20,” he added.
The temporary relief
The tariff pause had given markets around the world a chance to breathe easy.
In fact, India’s Volatility Index (VIX)—fear gauge—declined from a high of 22.7 on 7 April, the month when Trump first announced reciprocal tariffs, to around 12 on Thursday.
Fear seems to have taken a back seat, with investors showing little concern over near-term uncertainties. According to market experts, most potential shocks, from geopolitical tensions and tariff worries to central bank decisions and major policy or election events, appear to be priced in.
“This steep drop suggests that markets may not be pricing in the current geopolitical stress as highly volatile,” said Vinay Jaising, chief investment officer and head of equity advisory at wealth manager ASK Private Wealth.
Markets constantly try to price in upcoming changes, which naturally creates some uncertainty and results in volatility.
When the outlook is unclear, investors brace for a range of outcomes, including worst-case scenarios. But as soon as signs of stability or clarity emerge, those fears begin to recede and markets tend to settle, said Nimesh Chandan, chief investment officer, Bajaj Finserv Asset Management Ltd.
“When tariffs were first announced, markets reacted sharply and turned volatile. But now, with reports of the Indian government engaging with the US on a potential trade agreement, that anxiety has eased. And investors feel that the worst-case outcome may not materialize, and that is reflected in a falling VIX and rising markets,” Chandan added.
Interestingly, the trend isn’t limited to India, he pointed out. The Cboe Volatility Index—Wall Street’s “fear gauge”—which surged to 51 on 8 April, has also cooled off significantly, now sitting comfortably below the 20 mark, Jaising added. The index closed at 16.56, down 0.3%, on Wednesday.
The Cboe Volatility Index, run by the Chicago Board Options Exchange, is based on S&P 500 index options and serves as a key barometer of expected volatility in the US equity market.
A positive year so far
So far in 2025, the volatility index has slipped 14%, while the Nifty 50 has surged 7%, reflecting growing investor confidence.
Whenever India VIX trades below 15 for one or two months, the market typically readies itself for a new all-time high, noted Rajesh Palviya, head of technical research at Axis Securities. Looking at the India VIX now, he believes that the Nifty 50 could hit a fresh peak in July or August.
The Nifty 50 had hit an all-time high on 26 September 2024 at 26,216.05 points. On Wednesday, the headline index settled 0.35% lower at 25,453.40, down 2.9% from its record high.
Besides, Palviya pointed out: “Growing certainty and subdued volatility in the market are some key reasons we’re seeing a surge in the IPO (initial public offering) activity.”
In the last week of June, HDB Financial Services Ltd successfully raised ₹12,500 crore through its public listing. At the same time, several notable startups, including Wakefit, Curefoods, Shadowfax, and Pine Labs, filed their draft papers with the Securities and Exchange Board of India, Mint reported on 2 July.
Additionally, more than 50 companies have received approval from the regulator and are carefully timing their market debut based on favourable conditions and performance.
But…
Trump tariffs aren’t the sole headwind.
The corporate earnings season is set to kick off with Tata Consultancy Services Ltd’s results on 10 July, likely bringing a modest uptick in market volatility.
Still, the fluctuations may not match the intensity witnessed during the April-May period, said Jitendra Sriram, senior fund manager-equity at Baroda BNP Paribas Mutual Fund.
“The strongest phase (of volatility) may be behind us,” he added, “but there’s still room for some increase in volatility from current levels, depending on how earnings and other macro cues play out,” he said.
“If India VIX climbs past the mid-20 range, it’s a cue for investors to sit up and take notice,” he added.
Lastly, all eyes will be on the upcoming Federal Open Market Committee (FOMC) meeting, scheduled for 29-30 July. This meeting could spark fresh volatility as investors analyze the US Federal Reserve’s tone and policy cues.