Shares of PSU banks surged on June 2 on expectations that the Reserve Bank of India (RBI) could announce a rate cut at its upcoming Monetary Policy Committee (MPC) review later this week. Additionally, strong GDP numbers further supported shares on hopes of a strong credit demand.
The sharp rise in the share prices pushed the Nifty PSU Bank index up over 2 percent, making it the top sectoral gainer, dodging an overall muted market sentiment. The index has now extended gains for a second consecutive session, outperforming the broader Nifty Bank index.
The Reserve Bank of India (RBI) is likely to announce a third consecutive rate cut on May 6 (Friday) after its Monetary Policy Committee (MPC) concludes its deliberations which are scheduled to begin on June 4.
Further, India's GDP growth touched a four-quarter high of 7.4 percent in Q4 FY25, with full-year growth ending at 6.5 percent, according to data released by the government on May 30. This came as investment demand, helped by public spending, lifted the economy.
Bank of Maharashtra was the top gainer of the Nifty PSU Bank index, jumping over 6 percent to trade at Rs 57.44 apiece. Notably, this is the highest gain for the stock in 20 weeks. Indian Overseas Bank (IOB) shares rose over 5 percent, while those of Uco Bank, Union Bank of India and Central Bank of India were up over 4 percent each.
Punjab & Sind Bank and Indian Bank shares rose over 3.6 percent each, while Bank of India and Punjab National Bank (PNB) were up 2 percent each.
Bank of Baroda and Canara Bank shares rose over 1.5 percent each. Heavyweight State Bank of India (SBI) shares were trading in the green with marginal gains.
Barclays India said it expects the RBI to cut benchmark rates and maintain the 'accommodative' stance. "Lower-than-expected inflation outcome and outlook, underwhelming high frequency activity data for April, in-line GDP growth print for Q4 FY24-25, modest MSP increases, a cut in edible oil import duty are the some of the key reasons why we believe the RBI MPC could likely deliver a third successive repo rate cut of 25bp on June 6 while retaining the stance as 'accommodative'. We think the June cut would be an opportunistic move by the MPC, as the need for a third consecutive cut is quite low at this time," the firm said in its latest note.
"Economy gradually picked up after bottoming out in Q2FY25, Investments and government consumption were the key drivers while private consumption dragged. The pickup in H2 FY25 reflects the effectiveness of the monetary policy through rate actions as well as liquidity injections. However resilient growth would restrict RBI’s ability to cut rates beyond 50bps, as signalled by the uptick in benchmark yields. Government’s capex intensity improved substantially in Mar-25, meeting its budgeted target at the cost of slight fiscal deterioration. Our terminal rate expectation reverts to 5.5%. We expect growth in the range of 6.3-6.5% in FY26, provided India inks favourable trade deals in the upcoming months,” said JM Financial.
"The RBI had adopted an accommodative stance in its previous policy review meeting, and it is expected that we will again see a cut in the repo rate by 25 bps in the upcoming policy review cycle, giving further relief to the various sectors of the economy," said Ashok Kapur, Chairman, Krishna Group and Krisumi Corporation.
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