Banking stocks were trading higher ahead of CPI Inflation data, with hopes that a drop in the inflation rate, would prompt the Reserve Bank of India (RBI) to cut interest rates.

The Bank Nifty was up 1.20 per cent, led by a surge in the stock of ICICI Bank, which gained a huge 3.5 per cent. Other notable winners in trade were Bank of India, State Bank of India and Axis Bank.

Adherence to the fiscal deficit target has raised hopes that there would be further interest rate cuts. Lower than expected IIP data has also pushed demands for a more aggressive rate cut. The Reserve Bank of India officials are slates to meet next month to decide on interest rate cuts.

It is highly likely that the Reserve Bank of India would cut interest rates by 25 basis points. Since the rate cut cycle began the country's central bank has already cut interest rates by 125 basis points, largely as CPI inflation has cooled.

The fall in inflation is largely on the back of a drop in crude oil prices and other commodities.

GoodReturns.in