Banking stocks rallied in trade, on hopes that there maybe a few more interest rate hikes this year. ICICI Bank, HDFC Bank, State Bank of India and Punjab National gains all saw smart gains in trade.

The government slashed the interest on small savings rates, which may force banks to cut interest rates on deposits and hence lending rates. This could boost credit growth and also economic recovery.

The Reserve Bank of India is widely expected to cut interest rates later next month, by 25 basis points. Some analysts are pinning hopes on a sizeable 50 basis points cut in interest rates.

Inflation has been falling steadily in the last few months, thanks to a drop in crude prices. However, analysts are worried that should there not be normal monsoons, it could lead to a further spike in inflation and hence limit the ability of the RBI to cut interest rates.

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