The Indian financial markets witnessed a notable shift as the India VIX, often referred to as the 'fear index,' dropped below the critical level of 14. This decline indicates a reduction in market anxiety, even amidst ongoing geopolitical tensions in the Middle East. As of noon trading on Thursday, the India VIX was down 2.5 percent, settling at 13.92. This marks a significant 20 percent decrease in the volatility index over the past month, suggesting that traders are less concerned about abrupt market fluctuations.
Experts have highlighted that with the India VIX trading below the pivotal 15 mark, it reflects reduced volatility and an improvement in investor confidence. This could potentially support the current market uptrend, provided that other global and domestic cues remain stable.
"The decline in the fear index suggests that investors are reacting calmly despite geopolitical concerns," experts noted. This sentiment is further bolstered by strong institutional flows and positive global signals contributing to the optimistic market mood.
In the previous session, the India VIX had closed at 14.27, slightly down from 14.40, indicating a steady but cautious investor sentiment. With the latest move, markets appear to be transitioning into a more stable phase, although risks still loom on the horizon. Meanwhile, the benchmark indices showed slight declines.
Sensex slipped by 37.40 points, or 0.05 percent, to 81,407.26 during the intra-day session. Similarly, the Nifty dipped 7.20 points, or 0.03 percent, to 24,804.85, influenced by the US Federal Reserve's policy decision and weak Asian cues.
Federal reserve's stance and market reactions
The US Federal Reserve's decision to keep interest rates unchanged has been a focal point for market participants. In its statement, the central bank maintained its forecast for two rate cuts this year, although a growing number of policymakers now believe there may be no cuts at all. "The Fed also made a slight revision to its long-term outlook, now projecting only one quarter-point cut each in 2026 and 2027," said Mandar Bhojane of Choice Broking.
This decision comes amid criticism from former President Donald Trump, who has repeatedly pressured the independent central bank for rate cuts. Trump expressed his dissatisfaction on his Truth Social platform, calling Fed Chair Jerome Powell "the WORST" and a "real dummy, who's costing America $Billions!"
Hours before the meeting, Trump had told reporters at the White House, "We have a stupid person, frankly, at the Fed." He added, "We have no inflation, we have only success, and I'd like to see interest rates get down. Maybe I should go to the Fed. Am I allowed to appoint myself?"
Fed Chair Jerome Powell, addressing reporters, stated that the central bank would make better decisions if it waited a few months to understand how tariffs impact inflation, spending, and hiring. This indicates that the next rate adjustment could take some time to materialize. For now, Powell expects to learn more "over the summer," while officials appear increasingly divided on whether they can cut interest rates at all in 2025.
Geopolitical tensions and broader market context
The geopolitical tensions in the Middle East, particularly the conflict between Israel and Iran, have also been a point of concern. Powell acknowledged the possibility of higher energy prices due to the conflict but noted that such increases "don't generally tend to have lasting effects on inflation." The Fed's decision to maintain the status quo means interest rates are likely to remain elevated for longer, according to Timothy Chubb, Executive Vice President and Chief Investment Officer at Girard.
In the broader market context, the US stock market has shown mixed reactions to the Fed's decision. The S&P 500, for instance, has experienced fluctuations, with some stocks rallying while others have faced declines. Shares of Coinbase Global, the largest U.S. cryptocurrency exchange, soared 16%, marking the S&P 500's top daily performance. This surge came a day after the Senate passed the GENIUS Act, providing a regulatory framework for companies issuing stablecoins. The legislation requires stablecoin creators to hold dollars, Treasury securities, or other assets considered safe with a value equivalent to the coins they've issued, providing a guardrail against the collapse of digital assets.
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