Indices Hit New Highs, PSU Banks Lead with Biggest Rally in 6 Months
Sensex gains 205 points to close at 32,514; the NSE Nifty ends day at 10,077.10
Mumbai: Benchmark stock indices rose 0.6% to close at record high on Monday led by State Bank of India, which jumped 4.5% after the country’s largest lender slashed savings bank interest rate. Analysts said the near-term market prospects will depend on the outcome of the Reserve Bank of India’s monetary policy review on Wednesday when the central bank is expected to cut interest rates by 25 basis points.
BSE’s Sensex gained 205 points, or 0.6%, to close at 32,514. The NSE Nifty ended at 10,077.10, up 0.63%, or 63 points, over the previous close. Power Grid gained 4.2%, while Tata Steel, L&T, ONGC and ICICI Bank rose 2 to 3%. Among the Sensex stocks, 21 gained, while 10 fell. The Nifty PSU Bank index gained nearly 3.6% on Monday — its biggest single-day gain in six months — after SBI slashed savings bank interest rate to 3.5% from 4%.The move is expected to boost PSU banks’ profitability.
“The reductions in interest rate on savings account are a big positive for the entire banking industry in terms of cost of funds,” said Gaurav Dua, head of research at Sharekhan.
The SBI stock gained 4.5% to ₹ 312.55 while Bank of Baroda and Bank of India gained 2.5% each. PNB shares rose 2.04% to ₹ 162.20.
As on June 30, SBI had nearly ₹ 9.4 lakh crore worth of savings deposit. A 50 basis point cut in savings bank account rate will save nearly ₹ 4,000 crore annually, according to ana- lysts. For the year ended March 30, 2017, SBI posted a net profit of ₹ 10,509 crore.
“With this move, there is high possibility that the one-year deposit rates could also see some softening while most of the banks will try and take a cut from SBI,” said Siddharth Purohit, banking analyst at Angel Broking. “The cost of borrowings shall come down which will get offset by the fall in lending rates, but the net effect should be expansion in net interest margin for SBI.”
The next trigger for bank stocks will be RBI’s policy on Wednesday. Analysts said expectations of a 25 basis point rate cut has been factored in by the market. Investors will now watch the central bank’s comments on inflation and interest rate outlook.
Oil prices hit a two-month high, lifted by a tightening US crude market and the threat of sanctions against OPEC-member Venezuela. Brent crude futures were at $52.85 per barrel, up 33 cents or 0.6%.