Bank stocks rally on rate cut expectations

Fourteen bank stocks rose between 2.1% to 5.11% at 12:35 IST on BSE as the latest data showing a sharp fall in wholesale price inflation in April 2013 raised hopes that the RBI may further cut policy rates to perk up economic growth.

Punjab National Bank (up 5.11% at Rs 804.70), Union Bank of India (up 4.11% at Rs 240.40), Canara Bank (up 3.59% at Rs 424.70), Federal Bank (up 3.24% at Rs 472), State Bank of India (up 3.18% at Rs 2,364.10), Kotak Mahindra Bank (up 3.13% at Rs 750.15), IDBI Bank (up 3.04% at Rs 89.75), ICICI Bank (up 2.7% at Rs 1,179), Bank of Baroda (up 2.67% at Rs 721.80), Yes Bank (up 2.67% at Rs 521.15), Bank of India (up 2.58% at Rs 330.15), HDFC Bank (up 2.56% at Rs 706.80), IndusInd Bank (up 2.46% at Rs 503.35) and Axis Bank (up 2.1% at Rs 1,498), edged higher.

The S&P BSE Bankex index was up 403.45 points or 2.8% at 14,798.52. It outperformed the Sensex which was up 380.78 points or 1.93% at 20,103.07.

The Bankex index had outperformed market over the past one month till 14 May 2013, surging 10.09% compared with the Sensex's 8.11% rally. The index had also outperformed the market in past one quarter, gaining 1.97% as against Sensex's 1.15% rise.

The annual rate of inflation, based on monthly wholesale price index (WPI), eased sharply to 4.89% in April 2013, from 5.96% in March 2013, data released by the government on Tuesday, 14 May 2013, showed. Core inflation or non-food manufacturing inflation declined further to 2.74% in April 2013 from 3.41% in March 2013.

Meanwhile, WPI inflation for February 2013 was revised upwards to 7.28% from 6.84% reported earlier.

The consumer price inflation fell below the 10% mark in April 2013. The combined consumer price inflation for rural and urban India eased to 9.39% in April 2013 from 10.39% in March 2013, data released by the government on Monday, 13 May 2013, showed.

Reserve Bank of India Governor D Subbarao on Tuesday, 14 May 2013, said that the central bank will take note of falling inflation when discussing potential interest rate cuts.

The RBI on 3 May 2013 cut its key policy rate viz. the repo rate by 25 basis points (bps) to 7.25% and kept the cash reserve ratio (CRR) for banks unchanged at 4% after a monetary policy review. RBI said that the balance of risks stemming from its assessment of the growth-inflation dynamic provides little space for further monetary easing. The central bank said that with upside risks to inflation still significant in the near term in view of sectoral demand supply imbalances, ongoing correction in administered prices and pressures stemming from MSP increases, monetary policy cannot afford to lower its guard against the possibility of resurgence of inflation pressures. The RBI said it will endeavour to condition the evolution of inflation to a level of 5% by March 2014, using all instruments at its command.

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