India’s Banks Puts Cheapest in Six Months Before Rate Decision

The cost of bearish options on Indian lenders dropped to the lowest level in six months amid expectation the central bank will lower interest rates next week to revive economic growth.

The CNX Bank Nifty Index’s skew spread, a measure of how expensive puts, or bearish bets, are relative to calls, was at minus 4.07, the lowest reading since Nov. 2 when the gap was minus 5.92, data compiled by Bloomberg show. The bank gauge comprises 12 lenders including State Bank of India, the largest by assets.

The Reserve Bank of India may pare its benchmark rate by 25 basis points at a May 3 policy review, according to 14 of 16 economists in a Bloomberg survey. The bank index has jumped 14 percent in April, poised for the biggest monthly advance since September, amid speculation a cut in borrowing costs would help lenders boost lending and profitability.

“Investors are bullish on banks even after the runaway rally,” Aditya Agarwal, a derivatives analyst at Way2Wealth Securities Ltd. in Mumbai, said by phone today. “Improving fundamentals and expectation of a 50-basis point rate cut is lending support to the bank index.”

The ratio of outstanding puts to sell the CNX Bank index versus calls to buy was at 1.62 at 12:44 p.m., higher than its 12-month average of 0.93, the data show. April call options with a strike price of 13,000 rupees and put options with a 12,500- rupee strike have the largest ownership among bullish and bearish contracts, data compiled by Bloomberg show.

Puts give the right to sell a security for a certain amount, called the strike price, by a given date. Calls convey the right to buy.

The CNX Bank Nifty jumped 1.4 percent to 12,722 at 12:46 p.m., headed for highest close since Jan. 30. The markets were closed yesterday for a holiday.

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

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