Banking shares extend gain; Bank Nifty up over 3% in two days

Federal Bank, BOI, Andhra Bank, Oriental Bank, Allahabad Bank, Canara Bank and United Bank of India rallied over 3%.

Banking shares are trading higher by up to 9%, extending their previous day’s up move, after the World Bank said Indian economy is set to grow by 6.4% in 2015-16 as against 5.6% in 2014-15.

Federal Bank, Bank of India, Andhra Bank, Oriental Bank of Commerce, Allahabad Bank, Canara Bank and Union Bank of India has rallied more than 3% each, while State Bank of India, Punjab National Bank, Indian Overseas Bank, Axis Bank and ICICI Bank up 2-3% on National Stock Exchange (NSE).

At 1320 hours, the NSE Bank Nifty gained 2% compared to 1% rise in CNX Nifty. In past two trading session the banking share index rallied 3.5% against less than 1% gain in benchmark index.

“With economic activity buoyed by expectations from the new elected government of Prime Minister Narendra Modi, "India is benefiting from a 'Modi dividend'," the World Bank said.

Meanwhile, Bank of America Merrill Lynch said, the Reserve Bank is likely to cut rates beginning February as inflation is expected to reach the targetted 8% by next January. RBI Governor Raghuram Rajan is expected to cut 75 basis points in 2015, beginning February, according to the global financial services major, a PTI report suggests.

The report said: "Supply concerns are expectedly proving overdone. Second, the Rs 128,400 crore surplus with the RBI and coal fines or auctions should buffer the Rs 467,300 crore net borrowing programme from fiscal slippage."

Among individual stocks, United Bank of India has surged 9% to Rs 43.75, followed by Federal Bank (7% at Rs 130), Oriental Bank of Commerce and Bank of India (5% each at Rs 232 and Rs 242 respectively) and Andhra Bank (4% at Rs 68).