India’s equity-options market is indicating the possibility of a rebound as stocks headed for a two-month low.
The number of CNX Nifty Index put options per call, a gauge of investor sentiment, fell to 0.725 as of 12:49 p.m. in Mumbai, poised for the lowest level since March 26, data compiled by Bloomberg show. Call options increased to 1.12 million contracts, compared with a 10-day average of 1.02 million contracts. Puts fell to 812,106 from an average of 871,888 contracts. The Nifty index declined 0.9 percent to 7,758.05, bound for the lowest level since Sept. 8.
The last time the Nifty’s put-call ratio was below Friday’s level, the 50-stock index climbed 5.9 percent in the 10 sessions following March 26, according to data compiled by Bloomberg. The Nifty is on course for a third week of declines 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 also weighed on demand for emerging-market assets.
“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 36 percent to 4.30 rupees. Nifty futures for November delivery dropped 0.7 percent to 7,768.95.
The India VIX Index, a benchmark measure of option costs, rose 3.5 percent to 17.50, paring its weekly decline to 10 percent.