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India Options Prices Near 3-Month Low on Rate Pause Expectation

Options to protect against losses in Indian stocks fell to the lowest level since October amid expectation the central bank will keep interest rates unchanged and as the rupee strengthened.

India VIX, a gauge of options prices in the S&P CNX Nifty Index, was 22.64 at 12:15 p.m. in Mumbai, near the lowest since Oct. 28, data compiled by Bloomberg show. VIX soared 64 percent last year, its biggest annual gain since 2008 when the Nifty had its largest-ever yearly decline.

Indian equities are set for their best January since 2001 amid signs Europe will contain its debt crisis and expectation the central bank will ease its monetary policy to spur growth. The Reserve Bank of India, which raised borrowing costs seven times last year to tame the fastest inflation among so-called BRIC nations, will keep its benchmark rate at 8.5 percent at a review tomorrow, all 20 economists said in a Bloomberg survey.

“Risk perception has declined sharply and share prices are getting comfortable,” Ashish Chaturmohta, vice president of derivatives at IIFL Private Wealth, said by phone in Mumbai today. “Expectation of a rate pause, and a rising rupee is giving investors confidence.”

India’s rupee strengthened on speculation international investors will quicken purchases of the nation’s assets as inflation slows. The currency gained 0.2 percent to 50.24 per dollar as of 10:01 a.m. It rose 2.4 percent last week, the most since the five-day period ended Oct. 28.

Foreign investors raised holdings of domestic debt by $3.2 billion this month to $29.3 billion as of Jan. 19, exchange data show, and investments in stocks this year reached $1.2 billion. Inflation slowed to 7.47 percent in December from 9.11 percent the previous month, government data show.

Offshore funds pulled out $512 million from local equities in 2011, fueling the 25 percent drop in the BSE India Sensitive Index and making the rupee that made it Asia’s worst performer.

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