The Indian stock market was trading positive around noon. Public sector banking stocks gained the most as the Reserve Bank of India on December 26 notified that it will purchase 10-year bonds worth Rs 10,000 crore, while simultaneously selling four bonds maturing in 2020 for up to the same amount on December 30 in the open market.
This policy measure of buying long-term bonds and selling short-term ones is known as Operation Twist (OT). As the central bank buys long term securities, the rise in demand for them leads to lower long-term yields.
This helps push up short-term rates and push down long-term rates. The central banks opt for this measure when despite lowering interest rates, the long-term interest rates remain high as it is the long term rates that matter for investment and growth in the economy.
This action by the central bank would mean higher treasury profits on bond portfolios for banks.
The Nifty PSU Bank index gained over 3 percent intraday.
The Sensex was up 180.65 points or 0.44 percent at 41,344.41, while the Nifty was 54.40 points or 0.45 percent higher at 12,180.90.
Among the top gainers was Allahabad Bank that rose 8 percent with a volume spurt of over 3.41 times after it received a fresh capital infusion of Rs 2,153 crore from the government. Bank of Baroda, Punjab National Bank and Syndicate Bank also gained 4-5 percent.
State Bank of India added 2 percent, partially helped by global research firm Citi's buy rating on the stock with upward revision in the target price to Rs 400 from Rs 375 per share. Technical Analyst Rajat Bose of rajatkbose.com believes SBI is the best bet among PSU banks and will be a big beneficiary once the economy turns the corner.
Other banks such as Canara Bank, Central Bank of India, Indian Bank, Oriental Bank of Commerce and Union Bank of India gained 2-4 percent.
December 28 is an important weekend for PSBs as Finance Minister Nirmala Sitharaman is likely to hold a meeting with their heads to review the financial performance.
The 10-year yield slid 7 basis points to 6.51 percent, taking the weekly decline to nine bps, following the RBI's comment that it will buy long-end debt for a second week.Disclaimer: The views and investment tips expressed by investment experts on moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.