India Bank Hedging Costs Rise to 10-Week High as RBI Holds Rates

Updated on

Indian options traders are paying the most in 10 weeks to protect themselves against losses in shares of lenders after the central bank refrained from cutting interest rates.

Near-month put options with a strike price 5 percent below the CNX Bank Nifty cost 2.45 points more than calls priced 5 percent above in Mumbai today, data compiled by Bloomberg show. That’s the highest level for the spread since Jan. 29. The CNX Bank Nifty fell 0.7 percent to 18,469.30, the most in a week.

Reserve Bank of India Governor Raghuram Rajan left the benchmark rate at 7.50 percent after reducing it twice this year, a move predicted by 33 of 42 economists in a Bloomberg survey. The focus will now shift to March-quarter earnings, according to hedge fund QF Assets Ltd., with IndusInd Bank Ltd. and Tata Consultancy Services Ltd., India’s largest software company, due to report on April 16.

“Investors should avoid taking long positions on banks as the weakness may continue after the RBI held rates,” Supreeth Shankarghal, a director at QF Assets, said by phone from Bengaluru. “All eyes will be now on the quarterly earnings.”

QF Assets recommended on Wednesday options traders sell calls on the CNX Bank index amid bets their quarterly results will lag behind estimates. The strategy would have returned 42 percent as the price of calls with 20,000 strike dropped from 60.2 rupees on April 1 to 35 rupees today.

The India VIX Index, a measure of protection against stock market swings, fell 2.2 percent to 14.3.

The CNX Nifty trades at 16 times its 12-month projected earnings, compared with this year’s peak of 16.8 times on March 3. The MSCI Emerging Markets Index is valued at 12.2 times.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE