Put option hedges at 1-year high

Options traders are buying the most protection against losses in 14 months as Indian stocks rallied to a record for a second straight day.

The ratio of outstanding CNX Nifty index puts to calls rose to 1.40 at 3:50 pm in Mumbai, the highest since October 31, 2013, according to data compiled by Bloomberg. The 50-stock Nifty gained 0.4 per cent to 8,729.50 at the close for a fifth day of gains. The India VIX Index rose 2.6 per cent to 17.71, the highest level in two weeks.

"We are advising clients to book some profits after the sharp rally," Rajendra Wadher, director at PRB Securities, said by phone from Mumbai on Wednesday.

The equities rally comes after last week's unscheduled interest rate cut by the Reserve Bank of India (RBI), and before the federal budget expected next month. Central Bank Governor Raghuram Rajan has said continuing disinflationary pressures and sustained fiscal consolidation by the government would be critical for further easing of monetary policy. The RBI's next policy meeting is on February 3.

The benchmark 30-stock Sensex, which closed 0.4 per cent higher on Wednesday, is this month's best performer in dollar terms among 93 global equity indexes tracked by Bloomberg.

Foreign investors purchased $67.6 million of stocks on January 19, taking this year's inflows to $223.3 million. Foreigners bought a net $162.2 million of Nifty options yesterday, according to data compiled by Bloomberg.

The Nifty is valued at 16 times its projected 12-month results. The MSCI Emerging Markets Index trades at 11.4 times.