After reporting a sharp rally over the past four sessions, the banking gauge Bank Nifty fell into the red, retreating from the 57,000 mark. Investors rushed to book profits as the index reported a sharp rally following the Reserve Bank of India trimmed the benchmark lending rate and the Cash Reserve Ratio.
At 9.45 am, the Bank Nifty index was mildly lower at the 56,711.75 level, down 0.22 percent or 120 points compared to the previous session's closing price. The top losers on the index were ICICI Bank, IDFC First Bank and HDFC Bank, falling between 0.5 to 1 percent each.
Further, the dual banking indices Nifty Private Bank and Nifty PSU Bank fared better, trading near the flatline, down 0.1 percent and 0.03 percent each. The financial services index, which also rallied on the RBI's actions, fell nearly half a percent, down 120 points, with Cholamandalam Finance and ICICI General Insurance leading the losses.
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The Reserve Bank of India's Monetary Policy Committee slashed the key lending rate by 50 basis points on Friday, June 6, ahead of market expectations. During the April meeting, the RBI MPC cut the lending rate by 25 basis points to the 6 percent mark, down from 6.25 percent earlier, marking the second consecutive rate cut. With the 50 basis points cut, the repo rate stands at 5.5 percent.
Further, banking stocks got a fillip from the RBI trimming the CRR, also known as the cash reserve ratio, by 100 basis points. The CRR cut will happen in four tranches of 25 basis points each starting from September 6, October 4, November 1 and November 29 this year.
"The CRR cut is expected to provide some support to margins. We expect the recent actions of RBI – injection of durable liquidity since January 2025, relaxation of LCR norms, reduction of risk-weights on MFI loans and loans to NBFCs, overall repo rate cut of 100 bps since February 2025, and cumulative CRR cut of 150bp (since December 2024) – to provide some impetus to system loan growth," said Nomura, the Japan-based brokerage.
The brokerage added that it expects the CRR cut to benefit to be higher for mid-sized banks, such as IndusInd Bank, AU Small Finance Bank and Federal Bank and deposit-growth constrained large banks such as Axis Bank and HDFC Bank.
"Holding above the 56,100–56,200 breakout zone for Nifty Bank remains critical. A sustained move beyond 57,120 could open the path toward 57,700-57,900, aligning with the 0.618 Fibonacci projection. However, a drop below the breakout base may lead to short-term mean reversion, offering a cleaner risk-reward setup for fresh entries," said Om Mehra, Technical Research Analyst, Samco Securities.
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