Foreigners Buy Record Options as Indian Stocks Extend Advance

  • Options buying sparks short-covering in stocks: LKP Securities
  • Nifty 50 index headed for best week in more than four years

Global funds are buying the most Indian options on record as the benchmark gauge heads for its biggest weekly gain since December 2011 amid optimism over the federal budget.

They bought $635 million of index options Wednesday, adding to the biggest-ever single-day purchase of $704 million made the day before, data compiled by Bloomberg show.

The NSE Nifty 50 Index has rebounded from its biggest monthly loss since November 2011, as optimism over budget proposals unveiled Monday spurred capital inflows. Foreign funds bought a net $443 million of shares on March 1, the most since Sept. 15, after pulling out $2.9 billion in the first two months of the year amid a selloff in emerging-market assets.

“Foreigners began paring bearish bets after the budget, sensing that rally may follow,” Gaurav Bissa, a derivatives analyst at LKP Securities Ltd., said in a phone interview from Mumbai. “Foreigners are buying call options at higher strike prices.”

The India VIX index declined to a one-month low on Thursday as the rally curbed demand for protection against stock-price fluctuations. The Nifty climbed 1.1 percent to 7,452.3 at 1:45 p.m. in Mumbai, paring its year-to-date loss to 6.3 percent. The gauge trades at 14.9 times its 12-month projected profits, versus a multiple of 11.4 for the MSCI Emerging Markets Index.

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