Private bank stocks rallied up to 4% on Tuesday ahead of the RBI MPC October meeting outcome. The Nifty Private Bank index surged over 1% as investors prepared for Wednesday’s policy decision. Analysts expect a rate hike, as Murthy Nagarajan said, "The Indian bond market is pricing in a repo rate."
The Nifty Private Bank index advanced over 1%, while the Bank Nifty and Nifty PSU Bank index rose 0.6% and 0.3% respectively on Tuesday, a day ahead of the RBI policy decision.
Private banking stocks rally up to 4% on Tuesday, a day prior to the RBI policy decision.
Rex Cano Mumbai
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Shares of private sector banks rallied up to 4 per cent in Tuesday's intraday trade a day ahead of the Reserve Bank of India (RBI)-appointed Monetary Policy Committee (MPC) October meeting outcome. RBI's MPC is scheduled to announce its policy decision tomorrow, on Wednesday October 07, following the two-day meeting that began on Monday, October 05. The RBI is widely expected to increase interest rates in the October policy meet, given the spike in high bond yields and inflationary risks owing to a prolonged US-Iran war. Meanwhile on the bourses on Tuesday, the Nifty Private Bank index surged over 1 per cent to 27,000 levels. In comparison, the Bank Nifty and the Nifty PSU Bank indices were up 0.6 per cent and 0.3 per cent, respectively. The BSE Sensex and the NSE Nifty were up 0.4 per cent each. Among stocks, Kotak Bank led the rally in private banks, with a gain of 4 per cent. Axis Bank, IndusInd Bank and Bandhan Bank were up over 1 per cent each. HDFC Bank was trading with a gain of 0.5 per cent.
Analyst expectations from RBI policy
Analysts believe the RBI is likely to hike interest rates by 25 basis points on Wednesday. "The Indian bond market is pricing in a repo rate hike of 25 basis points (bps) and a temporary CRR hike of 50 basis points in the monetary policy announcement on October 07, 2026," says Murthy Nagarajan, Head-Fixed Income at Tata Asset Management. He added that the bond market has already factored in a 100 basis points of rate hikes in the current cycle. If the RBI Governor is not hawkish in his comments, the debt market may stabilise at current levels and trade in the band of 7.15 per cent to 7.25 per cent range, says Nagarajan. The analyst highlights that the US ten-year bond yields have touched a historical high of 5.34 per cent, level last seen in 2002. This is due to high CPI inflation along with large borrowings by quality companies in the bond markets for longer tenures. The US Federal Reserve hiked rates by 25 basis points, and its hawkish stance is putting pressure on the Indian currency. V K Vijayakumar, Chief Investment Strategist at Geojit Investments reckons that a 25 bps rate hike appears inevitable given rising inflationary expectations and rising bond yields in most of the developed world. "A rate hike is already discounted by the market; therefore, the focus of the market participants would be on the policy stance and the RBI's estimates on growth and inflation," says the analyst. From the banking sector perspective, Vijayakumar believes a rate hike would benefit banks whose margins will improve from rising floating rates. He added that strong deposit and credit growth in the economy indicate good prospects for the financial sector.Disclaimer: Views and outlook shared belong to the respective brokerages/analysts and are not endorsed by Business Standard. Readers' discretion is advised. (Disclosure: Entities controlled by the Kotak family have a significant holding in Business Standard Pvt. Ltd.)