India VIX Drops 14% After Trump’s Peace Signal; Experts Say Market Overreacted

India's Volatility Index (VIX), often referred to as the market's "fear gauge," dropped nearly 14% to 19.99 on Tuesday. This is notable retreat after it had surged more than 70% over the past month, touching a 21-month high as crude oil prices crossed the $100-per-barrel mark. The spike had been fuelled by growing anxiety over the escalating US-Israeli conflict with Iran and fears of disruptions to global oil supplies.

Point to note: India VIX measures how much turbulence investors expect in the stock market in the near future. When the index rises, it signals that investors are nervous and bracing for sharp swings. When it falls, as it did today, it suggests that some of that fear is receding.

The trigger for Tuesday's relief was a combination of two things. First, a sharp fall in crude oil prices and second, a statement from US President Donald Trump, who indicated that the conflict in West Asia could end soon. That was enough to ease fears of a prolonged oil supply crunch, and markets responded with cautious optimism.

By 2:00 PM on Tuesday, the Nifty50 was trading 0.84% higher at 24,229.45, up 201.40 points, while the Sensex climbed 0.73% or 563.03 points to 78,129.19, tracking a broader recovery in global markets.

Sudeep Shah, Head of Technical and Derivatives Research, pointed out that India VIX had surged nearly 120% from a low of 11.2 recorded on February 27, before the geopolitical tensions fully gripped markets, all the way to an intraday high of 24.49 on March 9.

"Heightened geopolitical tensions typically trigger uncertainty in financial markets, prompting traders and investors to hedge their positions more aggressively," Shah said, explaining the sharp spike.

He noted, however, that the 23-25 range on the VIX has historically acted as a ceiling. On multiple occasions, including August 2024, April 2025, and May 2025, the index cooled off after approaching this zone, eventually bringing relief to equity investors. "As long as India VIX sustains below the 23-25 zone, the probability of stability or a pullback in equity markets remains relatively high," he added, also pointing to early signs of selective buying emerging in the auto and pharma sectors.

Notably, not everyone is reading the recent turbulence as a structural problem. V K Vijayakumar, Chief Investment Strategist at Geojit Investments Limited, offered a more measured take. "The VIX behaviour can be different during different times depending on the triggers for the fear. This time, it appears that the market has overreacted a bit. This can reverse when crude declines in the coming days," he said.

Vijayakumar also addressed the behaviour of Foreign Institutional Investors, or FIIs. While FIIs had been net buyers in February, they turned sellers in March following the West Asian crisis. But he remains broadly constructive on India's prospects.

"Since the Indian economy is strong and has the potential to withstand the ongoing crisis, investors are likely to continue investing. Valuations are now fair for largecaps. High Net Worth Individuals will buy and long-term investors will continue to invest through SIPs," he said.

That said, Vijayakumar was careful not to dismiss the risks entirely. "Wars can trigger totally unexpected consequences. Therefore, investors have to wait and watch," he cautioned.