HDFC Bank, ICICI Bank, Axis Bank among other bank shares rose over 3 percent on Tuesday as the Reserve Bank of India’s (RBI) fresh liquidity measures boosted investor sentiment. The broader Bank Nifty index climbed 1.89 percent to hit an intraday high of 48,976, led by robust gains in IDFC First Bank, AU Small Finance Bank, and Axis Bank. Analysts expect the liquidity injection to support credit growth and improve asset quality in the sector.
On Monday, the Reserve Bank of India (RBI) said it will purchase government securities worth Rs 60,000 crore in three tranches and announced several other steps to inject liquidity into the banking system. As part of measures to manage liquidity conditions, the central bank also announced a USD/INR Buy/Sell Swap auction of USD 5 billion for a tenor of six months to be held on January 31, 2025.
To inject liquidity, RBI said Open Market Operations (OMO) purchase auctions of the government of India securities for an aggregate amount of Rs 60,000 crore in three tranches of Rs 20,000 crore each will be held on January 30, February 13, and February 20. Besides, a 56-day Variable Rate Repo (VRR) auction for a notified amount of Rs 50,000 crore will be held on February 7.
Positive Market Reaction
The announcement buoyed banking stocks, with HDFC Bank rising over 3 percent to an intraday high of Rs 1,682 per share on the NSE. ICICI Bank and Axis Bank also saw gains of around 3.5 percent, while IDFC First Bank and AU Small Finance Bank surged over 3 percent intraday.
Dr. V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, noted, "The RBI’s announcement to boost liquidity is positive for the market and improves the prospects of a rate cut in the upcoming Monetary Policy Committee (MPC) meeting in February. Banks are poised to benefit from this move."
Bank Nifty and Broader Indices Shine
The Bank Nifty index outperformed, rising 2 percent intraday, reflecting investor confidence in the banking sector. Meanwhile, the BSE Sensex climbed 708.9 points, or 0.94 percent to touch 76,075.07, while the NSE Nifty advanced 157.95 points, or 0.69 percent, to 22,857.65.
While the RBI’s liquidity measures have raised hopes of a rate cut, market experts remain divided. Rajeev Radhakrishnan, Chief Investment Officer – Fixed Income at SBI Mutual Fund, commented, “It may be premature to factor in a rate cut in February, given the prevailing growth-inflation dynamics. The April policy review appears more likely for such a decision.”
He added that the upcoming Union Budget will play a crucial role in setting the tone for fiscal actions aimed at spurring consumption and private sector investments.
With liquidity concerns addressed in the near term, market participants will now focus on the Union Budget and RBI’s February policy review for further cues.
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