Volatility has become a term mostly associated with negative aspects of the markets and investors are normally fearful of rising volatility. However, thinking negatively about the fast paced changes in the markets on all occasions is unnecessary. Investors have to bear in mind that markets have a mind of their own and can react in a rather hazy manner to some factors which lie beyond our control. One effective way to deal with volatility is to stay the course despite overreaction in the market. Normally, the volatility is less when the markets are locked in a one way trajectory. At times, the stock market goes up one day, and then goes down for the next two before rising yet again. A continued trend like this, without an apparent period of stability and calm is normally considered to be a time when markets are displaying high volatility. Volatility in the stock market is arguably one of the most misunderstood concepts in investing. Simply put, volatility is the amount of price changes a stock experiences over a given period of time.
The domestic equity markets have been hitting record highs on a persistent basis in recent weeks. The benchmark NIFTY and SENSEX have witnessed a strong upmove, soaring more than 10% from year to date. The markets had seen a rather rocky start to the year before rebounding in April 2018. The volatility of the local markets, as measured by an index called as India VIX (in annualized %) has been locked in a tight range over last few months and has not been impacted much by the repeated bursts of upsides in local stocks. The index indicates the investor’s perception of the market’s volatility.
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