India’s stock market enters deep freeze, record low volatility as options boom hits a wall

India's equity market is experiencing an unusually low-volatility phase, prompting traders to rethink their strategies. The Nifty 50 index has barely moved over the months, influenced by regulatory changes that have reduced volatility. The volatility gauge in India has reached record lows as domestic institutional demand surpasses that of foreign investors. This has serious implications for derivatives trading. With limited market swings, hedging demand has decreased, and option premiums are shrinking. Regulatory actions have curtailed speculative retail trading and led to the elimination of popular weekly options, resulting in a sharp decline in derivatives turnover. The Nifty has traded within a 1.5% range for over 150 days, while realized three-month volatility has dipped below that of other major equity markets. Additionally, foreign investors have withdrawn about $17 billion this year, while local institutions have invested over $80 billion, overtaking foreign investors as dominant market owners for the first time in over a decade. However, this stability has not translated into significant returns, with the Nifty 50 rising less than 10% this year.