Besides a status quo on interest rates by the US Federal Reserve which gave a thrust to entire equity market, banking stocks rallied during Friday’s trade on increasing hope of rate cut by RBI at its next monetary policy review meeting scheduled on September 29.
Amidst increasing hopes of an interest rate cut, banking stocks witnessed increasing buying momentum on Friday.
The Bank Nifty rose 444 points or 2.62%, while broader Nifty closed 1% higher at 7981.90. Private sector lenders Axis Bank and Federal Bank rallied the most with 4.7% gain while public sector banks such as Bank of Baroda and Canara Bank advanced 4.2% and 3.4% respectively.
Expectations of a cut in the repo rate — the benchmark lending rate, have compounded after consumer price inflation (CPI) slowed to 3.66% in August and stood way below the RBI’s target of 6% by January 2016.
Kotak Institutional Equities, in a research report said that it sees CPI inflation undershooting RBI’s 6% objective by ~50 bps in January 2016. “This, in conjunction with a dovish Fed should pay the way for a 25 bps repo rate cut at the upcoming RBI meeting,” it added.
While cooling inflation has attracted investors’ inclination towards rate sensitive stocks, media reports suggesting governments’ plans to increase FDI limit in private banks to 100% from the current 74% augmented buying interest in private sector lenders.
The combined traded volumes of Axis Bank on both BSE and NSE jumped over two-fold to 1.97 crore shares against 30-day average volume. Nearly 31 lakh shares of Kotak Mahindra Bank were traded on both the bourses, two times higher than its 30-day average volume.
Private lenders IndusInd Bank and HDFC Bank have gained between 10-15% so far in 2015 against a 4% drop by Nifty index.