UCO Bank, BoB, SBI, Union Bank Shares: PSU Banks Rally On RBI's Rates Decision; Check Out Gains In 1-Day

Banking stocks cheered RBI's latest policy decision on December 6. PSU Banks outperformed private banking stocks with the index on NSE surging by more than 1%. The majority of PSU banks such as UCO Bank, Central Bank of India, Bank of Baroda, SBI, Canara Bank, and Union Bank among others soared between 1-3%. On an expected line, RBI decided to keep the repo rate unchanged for the eleventh time in a row. But the key surprising factor was the 50 bps cut in cash reserve ratio (CRR) which is vital for liquidity flow in the banking system.

Bank Nifty surged by 159.10 points or 0.30% to trade at 53,762.65, driven by PSU bank stocks. Meanwhile, the Nifty Private Bank index climbed by 85.85 points or 0.33% to trade at 26,044.30. Among the private banks, Axis Bank, RBL Bank, IDFC First Bank, and City Union Bank were among the top gainers.

However, it was the Nifty PSU Bank that outperformed its counterparts. Nifty PSU Bank index soared by 73.10 points or 1.03% to trade at 7,198.65.

UCO Bank was the gainer surging nearly 3% to hit an intraday high of Rs 51.10 apiece. Also, the Central Bank of India's share price zoomed by 3% to hit an intraday high of Rs 61.90 apiece. Bank of Baroda share is also up by 2.7% to hit an intraday high of Rs 266.95 apiece. Additionally, share prices of Canara Bank and Union Bank of India jumped by over 2.4% each to hit an intraday high of Rs 110.80 and Rs 130.90 apiece respectively.

Stocks like PSB, Indian Overseas Bank, Bank of Maharashtra, Bank of India, PNB and SBI also edged higher by 1% to 2%.

Six-member MPC led by RBI governor Shaktikanta Das kept the policy repo rate unchanged at 6.5% for the eleventh time in a row on December 6. However, they decided to cut the CRR rate by 50 bps to 4%. Consequently, the standing deposit facility (SDF) rate remains unchanged at 6.25% and the marginal standing facility (MSF) rate and the Bank Rate at 6.75%.

The MPC also decided to continue with the neutral monetary policy stance and to remain unambiguously focused on a durable alignment of inflation with the target, while supporting growth.

Dr V K Vijayakumar, Chief Investment Strategist, at Geojit Financial Services said, "Monetary policy has delivered exactly what the economy and markets need in the present context. The Governor's emphasis on price stability is appropriate given the elevated level of inflation. The decision to cut the CRR by 50bp facilitating the injection of Rs 1.16 trillion of liquidity into the system will ease the liquidity constraints and more importantly reduce the banks' cost of funds. From the market perspective, this is an excellent policy response. Banking stocks will remain resilient."

In the press conference, RBI governor Shaktikanta Das said, "The MPC took note of the recent slowdown in the growth momentum, which translates into a downward revision in the growth forecast for the current year."

Das further said, that going forward into the second half of this year and the next year, the MPC assessed the growth outlook to be resilient, but warranting close monitoring. Inflation, on the other hand, surged above the upper tolerance band of 6.0 per cent in October, driven by a sharp uptick in food inflation. Food inflation pressures are likely to linger in Q3 of this financial year and start easing only from Q4:2024-25, backed by seasonal correction in vegetables prices, kharif harvest arrivals, likely good rabi output and adequate cereal buffer stocks.

High inflation reduces the disposable income in the hands of consumers and dents private consumption, which negatively impacts the real Gross Domestic Product (GDP) growth. The increasing incidence of adverse weather events, heightened geopolitical uncertainties and financial market volatility pose upside risks to inflation. The MPC believes that only with durable price stability can strong foundations be secured for high growth. The MPC remains committed to restoring the inflation growth balance in the overall interest of the economy, as per Das.