Banking Stocks Rally As RBI Keeps Policy Rates Unchanged; HDFC Bank, IDFC First Bank Are Top Gainers

The Nifty Bank witnessed a 0.6% gain, reaching an intraday high following the outcome of the Reserve Bank's Monetary Policy Committee (MPC) meeting. The Reserve Bank of India (RBI) opted to keep its lending rate (repo rate) unchanged, aligning with the consensus expectations of market experts and economists. This decision comes as the banking index sits less than 200 points away from its all-time high.

The unanimous decision to maintain the status quo on lending rates was accompanied by a 5:1 majority vote by the Monetary Policy Committee to remain focused on the "withdrawal of accommodation." The RBI, demonstrating confidence in the economic trajectory, raised the country's GDP growth estimates for the financial year 2024 to 7%, up from the earlier estimate of 6.5%. Additionally, projections for the final two quarters of the financial year 2024 were revised upward.

However, on the inflation front, projections for the current financial year remained unchanged at 5.4%, with similar stability expected in the remaining two quarters. Looking ahead to the financial year 2025, the RBI Governor disclosed inflation projections of 4% for the September quarter and 4.7% for the December quarter.

Addressing liquidity concerns, the Governor highlighted the increased utilization of both the Marginal Standing Facility (MSF) and the Standing Deposit Facility (SDF) by banks. To tackle this, the central bank proposed allowing the reversal of liquidity facilities in both MSF and SDF during weekends and holidays, effective from December 30, 2023.

In the Nifty Bank, out of its 12 constituents, five were trading with losses, while the remaining seven showed gains. AU Small Finance Bank and Bandhan Bank emerged as the top losers on the index, while HDFC Bank provided support.

Looking at the major stocks that contribute highly to the movement of the banking index, Axis Bank experienced a slight increase in stock price, accompanied by healthy 1-year returns. Currently trading at Rs 1,119.15 per share, the stock saw a marginal increase of 0.11% today, delivering a solid return of 19.21% over the past year.

Kotak Mahindra Bank witnessed a modest price increase but registered negative 1-year returns. Trading at Rs 1,832.65 per share, the bank's stock recorded a marginal increase of 0.31% today, with a negative return of 3.31% over the past year.

ICICI Bank showed a 0.46% increase in price today, delivering positive 1-year returns at 7.57%. Trading at Rs 1,003.6 per share, the stock demonstrated resilience in the face of market dynamics.

State Bank of India (SBI) experienced a marginal price increase, recording negative 1-year returns. Currently priced at Rs 614.25 per share, SBI saw a slight uptick of 0.41% today, with a negative return of 0.35% over the past year.

HDFC Bank, a major player in the banking index, showcased a 1.19% increase in price today, contributing to a 1.76% return over the past year. Trading at Rs 1,649.95 per share, the bank continues to be a key driver of positive momentum.

Commenting on the RBI's decision and its implications, Dr Esha Khanna, Assistant Professor at Sarla Anil Modi School of Economics, NMIMS Mumbai, stated, "RBI remains prudently watchful and discreet keeping its key rates and stance unchanged citing near term risk to retail inflation emanating from food prices and above-target inflation amongst its global peers."

Dr Khanna continued, "Given an easing of broad-based core inflation, positive growth outlook, and improving global headwinds, there is a comfortable scope for RBI to change its policy 'stance' by mid of the next financial year."