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

Options 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.

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