Investors are paying the most since July 2024 to protect against turbulence in Indian shares after years of domestic liquidity-fueled calm.

Implied volatility has soared this month as the benchmark NSE Nifty 50 Index joined a global selloff sparked by the Iran war. But unlike in other markets, the gauge of option prices for India is now much higher than realised volatility, indicating that traders are expecting more turmoil than in recent weeks.

Indian equities had been particularly calm, with the India NSE Volatility Index reaching a record low in December. While concerns ranging from a slowing economy to the lack of artificial intelligence players had started to weigh on the market, pushing foreigners to flee, a gush of domestic funds had buffered the declines.Then came the Middle East conflict that sent oil prices surging. The Nifty 50 tanked 4.6% this month through the last close before rebounding 0.8% Tuesday.

“Implied volatility doesn’t spike without a reason — it’s the market’s insurance premium going up,” said Maurya Ghelani, derivatives strategist at Kai Securities in Mumbai. “Investors are preparing for a regime shift. The options market is clearly pricing in the risk that calm conditions won’t last.”

Demand for protection has accelerated as investors grapple with India’s exposure to the escalating tensions in the Middle East. The nation is the world’s third-largest oil consumer and sources about 40% of its crude imports through the Strait of Hormuz, a government official has said.

The India VIX slipped 3.6 points on Tuesday after ending Monday at its highest level since June 2024 — up more than 14 points from the record low. Its ratio against the Cboe Volatility Index is near its highest since last May. Meanwhile, the cost of hedging against declines in the Nifty 50 in the next three months has also jumped.

India’s $4.8 trillion equity market had enjoyed years of mutual fund flows into stock funds via recurring monthly investment plans, with local institutions becoming the force behind the gains. In the past five years, they poured $223 billion into Indian shares, while overseas investors sold $11 billion. The persistent inflows helped absorb bouts of foreign selling and dampen volatility.

While the trend had so far continued in 2026, net purchases by domestic funds trailed those by foreigners for most of February. Now, the Iran war is adding a level of uncertainty that’s also affecting the millions of retail traders who dabble in the market, according to Dinesh Nagpal, a proprietary derivatives trader.

“Selling was across all sectors due to its domino impact,” he said, talking about the effect of higher oil prices. “This is a challenging period for retail because these investors saw margin calls that triggered portfolio selloffs to compensate for mark-to-market losses.”