The cost of options to protect against a drop in Infosys Ltd.’s shares fell for the first time in four days, signaling optimism that a weaker rupee will increase profitability at India’s second-largest software exporter.
One-month puts with a strike price 5 percent below Infosys’s shares cost 1.6 points more than calls priced 5 percent above, according to data available at 3:47 p.m. in Mumbai. The spread, known as skew, was at 2.5 points at Thursday’s close. Infosys shares rose 0.7 percent at the close, while the 50-stock CNX Nifty jumped 1.7 percent.
The skew dropped as the rupee trades near a 20-month low against the U.S. dollar amid outflows from the equity market. The rupee’s recent declines will help software companies grow earnings and orders, and was expected to help stocks rebound, said Rajendra Wadher, a director at PRB Securities.
“Information technology stocks will outperform the Nifty in the near term from a technical perspective,” said Ayush Nagaraj, a sales trader at Sanford C. Bernstein & Co. “The rupee broke out yesterday and it helps the sector, which is at a support level. The risk-reward at this level is skewed to the upside.”
Shares of Bengaluru-based Infosys are valued at 16.7 times their 12-month projected earnings, compared with a five-year average of 17.3 times. The CNX IT index, which gained 0.4 percent on Friday, trades at a multiple of 15.1.
The rupee strengthened 0.5 percent to 63.9275 per dollar, rebounding from Thursday’s drop to 64.24, its lowest level since September 2013. The India VIX index, a gauge of protection against stock market swings, fell 2.8 percent.
Foreign investors sold local shares for nine days through May 6, paring this year’s net inflows to $6.86 billion, according to data compiled
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