Indian Options Signal Stock Rebound on Nifty Put-Call Ratio

India’s equity-options market is indicating the possibility of a rebound as stocks fell to a two-month low.

The number of CNX Nifty Index put options per call, a gauge of investor sentiment, dropped to a seven-month low of 0.72 during the session, before climbing to 0.73, according to data available at 3:53 p.m. in Mumbai. Call options increased to 1.11 million contracts from a 10-day average of 1.02 million contracts. Puts fell to 811,252 from an average of 871,888 contracts. The Nifty index declined 0.8 percent to 7,762.25, its lowest level since Sept. 8.

The Nifty capped a third week of declines on Friday after Prime Minister Narendra Modi’s party lost elections in Bihar state, raising concern about his ability to push through policies in the parliament to strength the economy. The outlook for an increase in U.S. interest rates has also weighed on demand for emerging-market assets. The last time the 50-stock gauge was below Friday’s intraday level, it climbed 5.9 percent in the 10 following sessions, according to data compiled by Bloomberg.

“Stocks tend to rebound whenever the put-call ratio drops drastically,” Sahaj Agrawal, a vice president of derivatives at Kotak Securities Ltd. in Ahmedabad in western India, said in a phone interview. “Sentiment wise, over-negativity has entered the markets. We expect a rebound to be short” as the market trend is still weak, he said.

The cost of Nifty 8,200 call options, the most popular by number of outstanding contracts, tumbled 37 percent to 4.20 rupees. Nifty futures for November delivery dropped 0.7 percent to 7,770.

The India VIX Index, a benchmark measure of option costs, rose 4.4 percent to 17.65, paring its weekly decline to 9.4 percent.

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