The market recovery offers little solace. Ask India’s fear gauge.

India’s equity markets sprung back Tuesday from the previous day’s crash, but the country’s ‘fear gauge’ remains in dispirited territory, signalling that investors might be in for another few weeks of uncertainty and instability.

The India Volatility Index surged 65.7% on Monday to 22.8—its highest spike since its inception in 2007. On Tuesday, the gauge dropped to 20.44, but was up by about 47% over five trading days as US President Donald Trump unleashed a global trade war last week.

India VIX reflects the market’s expectation of volatility in the benchmark Nifty 50 index over the next 30 days and is widely regarded as a barometer of market sentiment. Its current spike points to increased investor anxiety comparable with previous crises such as the 2008 global financial meltdown and the covid-19 crash in 2020.

During the peak of the global financial crisis in November 2008, India VIX had soared to 85.13. In March 2020, at the height of the pandemic, it hit 83.6. In both cases, those levels of extreme fear were followed by market bottoms and eventual recoveries.

“Volatility indices are a clear reflection of fear,” said Anand K. Rathi, co-founder of financial advisory firm Mira Money. “A sharp spike doesn’t just indicate current uncertainty but often reflects concern about sustained instability in the coming weeks. It’s not always about today’s headlines—it’s about what investors think might come next.”

However, experts caution against oversimplifying the relationship between volatility indices and equity markets. While conventional wisdom assumes an inverse correlation—where higher VIX levels typically accompany falling markets—the dynamic is more nuanced.

“While it may seem appropriate to assume an inverse relationship between VIX and the market, an analysis of data over the past three years of Indian VIX and Nifty daily movements reveals a correlation of only 37%,” said Ranju Rajan, head of managed accounts at Axis Securities. “This relatively weak inverse correlation is not statistically significant enough to suggest a consistent or causal relationship.”

That said, Rajan added that “a spike in the VIX often serves as a reliable signal of rising uncertainty and a potential reversal or shift in market trajectory, typically moving in the opposite direction of Nifty”.

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Some opportunity, but little solace

On Tuesday, the Nifty 50 climbed 1.69%, or 374.25 points, to 22,535.85, after losing 742.85 points, or 3.24%, the previous day.

Across Asia, the reaction had been similarly fierce on Monday. Benchmark indices in Hong Kong, Japan, South Korea, and Taiwan fell between 3% and 14%, highlighting the widespread nature of the sell-off.

Regional volatility indices spiked in tandem: Hong Kong’s VIX soared nearly 90% to 47, South Korea’s climbed 65% to 44.23, and Japan’s jumped 64% to 58.4. These levels, though not at historic peaks, came close to the panic levels seen during the 2008 crisis and the March 2020 market rout.

Some calm appeared to return to markets on Tuesday as Asian indices staged a modest recovery. Most regional indices (that had opened for trading) rebounded between 0.3% and 6%, driven by bargain hunting and some signs of diplomatic engagement over the tariff issues.

Simultaneously, volatility readings eased: Hong Kong’s VIX dropped 16.7% to 39, South Korea’s declined 14.4% to 37.8, and Japan retreated by nearly 20% to 47.

Manish Bhandari, founder and chief executive of Vallum Capital Advisors, described the volatility index as primarily a “sentiment play” that often overreacts in the short term. “When a major news event breaks, VIX spikes sharply, typically for a day or two,” he explained.

Even if the market continues to slide, the VIX tends to normalize as traders digest the information and adjust their positions. Historically, these spikes have been opportunities—buying during periods of elevated VIX has often rewarded patient investors, he said.

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Tuesday’s market recovery, some market experts said, offers little solace as retaliatory tariffs by China and some other nations keep global volatility simmering.

“Moreover, the upcoming outcome of the MPC’s monetary policy meeting could add to the market swings, especially on the weekly expiry day (for futures and options contracts),” said Ajit Mishra, senior vice president, research, Religare Broking.

The Reserve Bank of India’s monetary policy committee began its three-day meeting on Monday to decide on the central bank’s key policy rate.

Economists surveyed by Mint expect the panel to cut the repo rate by 25 basis points to 6% owing to a combination of easing inflation and tightening economic growth. The MPC had in February cut the repo rate for the first time since May 2020 by 25 basis points to 6.25%.