Sensex, Nifty edge up; led by liquidity hopes

The BSE Sensex edged higher on the first day of the quarter, as banking stocks rose for a second session in a row on expectation that the cash crunch that had constrained the sector in March will ease in the new fiscal year thanks to government spending and a more vigilant RBI.

Banking shares had suffered in March from pronounced liquidity shortages, tied in part to end-of-year tax outflows and delayed government spending, leading the sector boost their short-term borrowing from the central bank.

The liquidity shortage prompted the RBI to step in with surprise bond purchases on Friday, and analyst expect an additionally improved situation this week as government spending kicks in.

"With government spending kicking in, I think liquidity scenario should ease off in the second half," said Sandpit Sabharwal, CEO of portfolio management at Prabhudas Lilladher.

Some analysts said that the banking sector could also benefit if the Reserve Bank of India steps in with a rate cut at its April 17 meeting. Lenders had been hit last month by disappointment after the central bank kept policy on hold.

State-run banks were additionally boosted after they sold shares to the government at above-market prices, as part of previously announced capital injection plans.

State Bank of India rose 1.2% to Rs 2,122.00 after saying on Friday it had approved the issuance and allotment of 36 million shares at Rs 2,191.69 per share to the Indian government.

The main 30-share BSE index was up 0.3%, while the 50-share Nifty index was up 0.3% compared to being flat in the morning trade.