India’s Banks Puts Cheapest in 6 Months Before RBI Policy

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 5.93, data compiled by Bloomberg show. The bank gauge comprises 12 lenders including State Bank of India.

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.”

India’s benchmark S&P BSE Sensex has rallied 6 percent since falling to a seven-month low on April 9 after official data last week showed wholesale-price inflation slowed to a 40-month low and plunging prices of gold and oil prompted speculation the central bank will cut borrowing costs.

The Sensex advanced 0.9 percent to 19,345.72 at 2:26 p.m. in Mumbai, bound for the highest close since March 15.

Record Deficit

A record shortfall in the nation’s current account, along with a consumer-inflation rate that exceeds 10 percent, has deterred the RBI from making further reductions to borrowing costs after 25 basis-point cuts in January and March. Imports of oil and gold added to the $32.6 billion current-account gap in the last quarter of 2012, government data show.

The ratio of outstanding puts to sell the CNX Bank index versus calls to buy was at 1.58, 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.

ICICI Bank Ltd., India’s largest private lender, climbed for the 11th day, rising 0.8 percent to 1,170.2 rupees, the longest winning streak since September 2005. Yes Bank Ltd. and Axis Bank jumped more than 2 percent each, rising for a record 10th day. State Bank rose 1.3 percent to 2,318.15 rupees.

The CNX Bank Nifty jumped 1.2 percent to 12,693.55, headed for its highest close since Jan. 31. Indian markets were closed yesterday for a holiday.