India Options Prices Drop to Eight-Month Low on RBI Cut

Options (SENSEX) to protect against losses in Indian stocks fell to an eight-month low after the nation’s central bank reduced borrowing costs for the first time since 2009 yesterday to revive economic growth.

India VIX, a gauge of options prices in the S&P CNX Nifty Index, sank 3.3 percent to 19.6 as of 9:57 a.m. in Mumbai, the lowest level since Aug. 3, data compiled by Bloomberg show. The Nifty gauge rose 0.9 percent to 5,338.25, extending yesterday’s 1.2 percent advance.

“The rate cut is a big positive for sentiment and has led to a sharp fall in volatility,” Sunil Jain, derivatives analyst at Quant Broking Pvt. in Mumbai, said by e-mail today.

The Reserve Bank of India cut the repurchase rate by 0.5 percentage points to 8 percent yesterday, exceeding the 25 basis-point median estimate of 25 economists in a Bloomberg survey. Gross domestic product may expand 7.3 percent in the year through March 2013, compared with the baseline projection of 7 percent for the previous 12 months, the bank forecast.

Asia’s third-largest economy grew at the slowest pace in three years in the fourth quarter after the RBI raised rates by a record 13 times from March 2010 and October last year.

To contact the reporter on this story: Santanu Chakraborty in Mumbai at schakrabor11@bloomberg.net

To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net

Bloomberg reserves the right to edit or remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.