For the first time in recent history, Indian stocks are being viewed as less risky than their U.S. counterparts. To some, this might seem counterintuitive—particularly given India’s emerging market tag—but it marks a dramatic shift in global risk perception, driven largely by economic uncertainty stemming from U.S. policy decisions. 

The turning point came in April 2025, when President Donald Trump unveiled draconian “Liberation Day” tariffs. The aftermath was a surge in global volatility, with U.S. equity markets taking the brunt of the hit. The most telling signal of this change originates in the options market, in the form of the VIX indices that track anticipated stock market volatility. These indices are a barometer of market risk—and the numbers speak volumes. 

From May 2024 to March 2025, the India VIX averaged 15.0, whereas the U.S. VIX stood at 16.8, indicating a slim gap, with the U.S. market marginally riskier. But since the imposition of tariffs in April, the U.S. VIX has surged to an average of 33.4—almost double India’s 16.8. This record divergence indicates that investors now regard the Indian market as a relatively safer bet. 

Risk and Reality: The New Normal 

This role reversal between the U.S. and Indian markets is no statistical anomaly—it has significant economic consequences. Higher volatility means heightened uncertainty, and that directly influences business decisions. When the future is unclear, companies and consumers wait. Investment is deferred, hiring is paused, spending is cut, and economic momentum slows. 

In the U.S., where the future of trade policy remains opaque, that is exactly what is unfolding. Companies uncertain about the cost implications of tariffs are delaying capital expenditure. Consumers anxious about job security are holding off on major purchases. Even if the tariffs are eventually rolled back, the economic drag from this “wait and see” freeze will linger. 

India, in contrast, appears to be enjoying relative insulation from the trade war. Although the India VIX has also edged up (from 15.0 to 16.8), the increase is modest. This suggests that while Indian markets are not immune to international pressures, they are navigating the global storm with greater resilience. 

The Implications for Policymakers and Investors 

For international investors, this presents an unusual window of opportunity. If India is now perceived as a relatively stable market, capital will flow. In a world chasing yield without undue risk, India may increasingly be seen not just as a growth story but as a hedge against U.S. policy risk. 

That said, policymakers must not mistake this for immunity. India’s own volatility has risen. Global interdependence means that a slowdown in the U.S. will inevitably affect Indian exports, foreign direct investment, and market sentiment. The country must remain alert to inflationary trends, currency pressures, and the need for fiscal discipline. 

Moreover, Indian regulators and the government must enhance transparency and strengthen investor protections to fully capitalise on this newfound credibility. Consistent policy settings—particularly in taxation and capital controls—will be key to sustaining this advantage. 

A Lesson in Market Psychology 

Finally, the VIX narrative offers a lesson in market psychology. It reveals where investors see risk, and where they find resilience. Markets may falter, but they are seldom irrational for long. That Indian equities are now perceived as less risky than their U.S. peers is no minor feat. It reflects a global realignment of expectations. 

In today’s uncertain world, India has a rare opportunity to position itself not only as a high-growth economy, but also as a relatively stable one. But transforming this perception into long-term advantage will require strategic reforms, sustained macroeconomic discipline, and policy clarity. If India plays its cards right, this could be more than a fleeting moment—it could signal a shift in the global economic order.