Banking stocks received another booster from OPEC’s decision on oil production and the sharp decline in crude oil prices thereafter on Thursday, increasing hopes of a possible rate cut by the Reserve Bank of India (RBI) at its bimonthly credit policy on December 2.
India’s largest lender by assets, State Bank of India (SBI) surged 5.4%, while other public-sector lenders such as Canara Bank, Punjab National Bank (PNB), and Bank of Baroda (BoB) rose 7.5-8%, lifting the bank index to a new record.
The Bank Nifty jumped 2.72% or 490.65 points to 18513.15. All 12 stocks on the index ended in the green. BoB surged to record highs, while PNB advanced to its highest level in over three years. SBI shares rose to near four-year high. Federal Bank rose to another record as did IndusInd Bank, Yes Bank, ICICI Bank and HDFC Bank.
Analysts said the OPEC decision to maintain status quo on oil production – at 30 million barrels a day – is good news for oil-importing countries like India whose economic targets, including inflation, depend heavily on international oil prices.
Crude oil prices fell nearly 7% on Thursday to a four-and-a-half year low after the OPEC decided against a cut in oil production. Analysts were expecting OPEC to cut output by 1.5-2 million barrels per day in the wake of declining oil prices. Brent prices have fallen nearly 30% in the last three months, data showed.
“The stars are aligning for a rate cut,” said Aseem Dhru, MD and CEO of HDFC Securities. “The current slide in crude oil prices is no flash in the pan. It is a harbinger of future low prices. This will give the government the elbow room to reduce petroleum product prices further, which will further bring inflation down, and in turn clear the smog for the RBI governor,” Dhru added.
India was the world’s fourth-largest consumer of crude oil and petroleum products in 2013, after the US, China, and Japan. The country depends heavily on imported crude oil according to US Energy Information Administration (EIA).
The surprise rate cut by the Chinese central bank last week and the finance minister Arun Jaitley’s forthcoming meeting with the RBI governor ahead of the policy gave a fillip to bank stocks, analysts said.
“While we do not expect the RBI to drop its guard against long-term inflation pressures, we think the RBI will find it difficult to ignore the large easing in inflation momentum and is likely to tone down its hitherto hawkish policy rhetoric,” Barclays said in an investor note. There’s an “outside chance” of a cut next week “if Governor Rajan wants to surprise,” they said.
Governor Rajan has kept one of Asia’s highest interest rates unchanged since January after pledging to lower Indian inflation once and for all when he took over the central bank last year.