Hedging costs for Indian stocks advance by most in four years

The cost of hedging Indian stocks has surged by the most since the onset of the Covid-19 pandemic ahead of the general election’s outcome next week.

The NSE India Volatility Index has risen 88% in May, the most since March 2020. In an unusual occurrence, the gauge of options prices kept creeping up even as stocks reached record highs last week. The NSE Nifty 50 Index has since slipped and the so-called India VIX ended at 24.17% on Thursday, near a two-year high.

The jump in swings is predictable as investors await the June 4 results. While Prime Minister Narendra Modi is expected to win a third term in office, low voter turnout and reports of close contests in some states have tempered enthusiasm for elections that began on April 19.

“As we edge closer to the result, participants do not want to take any risk and are hedging for the ‘just in case’ outcome,” said Chandan Taparia, head of technical and derivatives at Motilal Oswal Financial Services Ltd., adding that the market is generally bullish on the vote.

With his pro-business policies and a boom in economic growth, Modi has presided over a surge in the Indian stock market, which is now heading for a ninth straight year of gains. Should his Bharatiya Janata Party win, he’ll extend his 10-year rule and become the first to hold the office continuously since Jawaharlal Nehru, the country’s first prime minister.