Banking, infra shares rally on rate cut hope

SBI, Kotak Mahindra Bank, ICICI Bank, Unitech, HDIL, Jaypee Infratech and GMR Infra are up 2-5% on BSE.

Banking and infrastructure including real estate shares are in focus on expectation hat the Reserve Bank of India (RBI) will cut interest rates at a policy review on Friday.

State Bank of India, ICICI Bank, Kotak Mahindra Bank, Syndicate Bank and Dena Bank from banking and Unitech, Housing Development and Infrastructure (HDIL), Jaypee Infratech and GMR Infra from real estate and infrastructure sector are trading higher in the range of 2-5% on the Bombay Stock Exchange (BSE).

The BSE realty index and banking index Bankex are up 1.6% and 1.5% respectively compared to 1.3% rise in benchmark Sensex at 1322 hours.

Most of the analyst expects at least 25-bp rate cut along with liquidity infusion measures from the RBI’s annual policy tomorrow.

Analyst at Bank of America Merrill Lynch expects the Central Bank will cut policy rates by around 100 bps in the current financial year 2013-14 as the India Meteorological Department (IMD) has forecast normal rainfall this year.

“We expect the RBI to cut policy rates 25bp on May 3. It will likely cut 25bp again in June, October and January. After all, core inflation will likely persist at 4% levels with faltering growth restraining pricing power. The Met’s normal monsoon forecast (and lower oil prices) should also support the case for RBI easing,” says analyst in India Macro weekly report.

In the March policy, RBI had said further scope for rate cut limited citing the wedge between retail and wholesale inflation and also widening current account deficit.