Sensex gains on big RBI rate cut hopes
India`s stock markets rose to a near 11-week high on Monday as hopes increased the Reserve Bank of India (RBI) could cut rates by as much as 50 basis points next month after the government slashed the country`s retail savings rate last week.
The government on Friday cut interest rates for term deposits offered to millions of small savers after the Reserve Bank of India reduced interest rates by 125 basis points last year.
Bank shares rose, tracking strong gains in bond markets.
Aligning the government rates with the private sector could spur banks to further cut their lending rates and encourage the RBI to cut rates more aggressively at its April 5 policy review, analysts said.
Traders have been expecting the RBI to cut rates by 25 bps, but now see the prospect of a 50 bps easing.
"With the cut we have seen in the small saving schemes, the probability of 50 bps (rate cut) has gone up and that`s why markets are looking to break out of this short-term range," said Pankaj Pandey, head of research at ICICI Securities.
The broader NSE Nifty rose 0.55 percent to 7,646.25 by 0710 GMT, its fourth consecutive increase, while the benchmark BSE Sensex gained 0.66 percent to 25,117.12.
Both the indexes earlier hit their highest levels since Jan. 7.
Banks led the gains, with State Bank of India rising 2 percent and Punjab National Bank advancing 3 percent.
The S&P BSE Bankex has rallied about 13 percent this month after government unveiled a fiscally prudent budget and as the central bank eased rules on how banks can account for capital to meet Basel III requirements.
Meanwhile, shares of Indian jewellery firms climbed after jewellers called off a 19-day strike late on Saturday following the government`s assurance that the excise department would not "harass" the jewellers while collecting a new tax.
PC Jeweller Ltd advanced 1.6 percent.
Persistent Systems rose as much as 18.7 percent ahead of an investor and analyst call scheduled after market close in which investors hope the company would provide optimistic business guidance for the next fiscal year.
Among the laggards, Asian Paints fell more than 2.5 percent after Kotak Institutional Equities said its channel checks suggested the company has cut prices across its decoratives portfolio by around a weighted average of 3 percent.