Will Market Volatility Rise In 2018?

India VIX, the fear gauge that indicates volatility, is trading at multiyear lows and below its 10-year average near 22.5.

From current level, India VIX will have to rally about 80-percent to revert to its mean. Will that happen? Unlikely, said Ashish Chaturmota, vice president at Sanctum Wealth Management. But he expects India VIX to spike 10 to 20 percent in 2018. Yet, the market may not correct sharply, he said.

While the upside may be debatable, Nirav Chheda, derivatives and technical analyst at Nirmal Bang Securities said the downside is capped at current levels.

Markets are at a lifetime high and the put-call ratio too is at levels last seen during 2008 financial crisis, he said. "Many factors in the market are pointing towards market consolidation or even a fall going into 2018 and with that the VIX is expected to rise to 14-16 levels by mid-2018."

A higher volatility means that the price of the security can change dramatically in a short period in either direction, while lower volatility suggests that a security’s value does not fluctuate dramatically.

The gauge is based on Nifty 50 Index Option prices and indicates the expected volatility over the next 30 days. It came within a kissing distance of its lifetime low of 8.75 it hit in 2008. It’s fluctuated between 8.76 and 18.26 this year, is below the average for the year. That reflects in Nifty 50 Index. In 2017, there were only five instances when the benchmark index declined more than 1 percent in a week.