Sensex, Nifty rise as bank stocks gain ahead of RBI policy

The Sensex was at 72,596.30 at 9:40 am, up 213.83 points or 0.30%. The index opened at 72,508.05 and touched an early high of 72,594.21. The Nifty 50 was at 22,596.75, up 43 points or 0.19%. It opened at 22,603.25 and touched a high of 22,628.10.

In Short

• Markets opened higher on Tuesday led by banking and financial stocks
• RBI policy decision on Wednesday in focus; 25 basis points hike likely
• Crude oil prices stable; global cues improved after soft US jobs data

Benchmark indices opened higher on Tuesday, extending the rebound from the previous session as banking and financial stocks gained on positive quarterly updates. Supportive global cues and easing concerns over aggressive US monetary tightening also helped sentiment, while investors remained focused on the Reserve Bank of India's policy decision due on Wednesday.

The Sensex was at 72,596.30 at 9:40 am, up 213.83 points or 0.30%. The index opened at 72,508.05 and touched an early high of 72,594.21. The Nifty 50 was at 22,596.75, up 43 points or 0.19%. It opened at 22,603.25 and touched a high of 22,628.10.

The gains follow a strong session on Monday, when the Sensex and Nifty rose 0.66% and 0.60%, respectively, after both benchmarks had suffered their eighth straight weekly decline. The rebound was supported by lower oil prices and softer-than-expected US jobs data, which reduced expectations of an aggressive Federal Reserve rate hike.

BANKING STOCKS LEAD GAINS

Banking and financial stocks were among the key drivers of Tuesday's early gains. The Nifty Financial Services 25/50 index rose 0.59%, while the private bank index gained 1.12% and the PSU Bank index advanced 0.22%.

Kotak Mahindra Bank was among the biggest gainers in the Sensex pack, rising 3.86%. Axis Bank gained 1.40%, while HDFC Bank rose 0.21%. Bajaj Finserv and Bajaj Finance also traded higher.

Trent was the top Sensex gainer, jumping 9.01%, while Reliance Industries rose 0.91% and IndiGo gained 0.63%.

Banking stocks are also in focus after several lenders reported positive quarterly business updates, supporting expectations of continued credit growth in the financial sector.

RBI POLICY IN FOCUS

The RBI Monetary Policy Committee's meeting remains the key event for investors this week, with Governor Sanjay Malhotra scheduled to announce the policy decision on Wednesday.

Dr V K Vijayakumar, Chief Investment Strategist at Geojit Investments Limited, said a 25-basis-point rate hike appears likely and has already been largely factored into market valuations.

“This uncertainty will weigh on the central bank when the RBI Governor announces the MPC policy decision tomorrow. A 25 bp rate hike appears inevitable in the context of rising inflationary expectations and the rising bond yields in most of the developed world,” Vijayakumar said.

He added that investors are likely to focus more on the RBI's policy stance and its projections for growth and inflation rather than the rate hike itself.

CRUDE OIL, GLOBAL CUES

Crude oil prices remained relatively stable in early trade. Brent crude was at $100.63 per barrel, up 0.31%, while WTI crude stood at $89.69, up 0.29%.

Oil prices remain a key factor for Indian equities as elevated crude can add to inflationary pressures and weigh on India's import bill.

Vijayakumar said the market would need a sharper decline in crude prices for a sustained rally.

“A sustained rally in the market will require sharp dip in crude prices. But there is no clarity on this front,” he said.

Global cues have improved after softer-than-expected US jobs data reduced expectations of a Federal Reserve rate hike later this month, offering some relief to emerging-market assets.

BROADER MARKET, SECTORS

The broader market also opened higher. The Nifty 100 rose 0.34%, Nifty 200 gained 0.36% and Nifty 500 advanced 0.40%. The Nifty Midcap 50 and Midcap 100 rose 0.40% and 0.42%, respectively, while the Nifty Smallcap 100 gained 0.80%.

Among sectors, PSU banks gained 0.22%, private banks 1.12%, financial services 0.59%, metals 0.78%, oil and gas 0.48% and consumer durables 0.51%.

IT stocks remained under pressure, with the Nifty IT index down 0.62%. Pharma slipped 0.04%, while healthcare declined 0.19%.

Among individual stocks, Hindustan Unilever rose 1.14%, while Tata Steel, Maruti, HCLTech and L&T also gained.

On the other hand, Tech Mahindra fell 1.39%, while M&M, ITC, Infosys, Sun Pharma, Asian Paints and Eternal were also trading lower.

FIIs REMAIN A KEY OVERHANG

Despite the recent rebound, foreign investor selling continues to weigh on the market. High US bond yields remain a concern, with the US 10-year yield hovering around 5.3%.

Vijayakumar said this could keep the market in a “sell on rally” phase, with foreign investors continuing to sell large-caps even as domestic institutional investors support them through sustained fund inflows.

“A rate hike would be beneficial for the banks whose margins will improve from rising floating rates. The strong deposit and credit growth in the economy indicate good prospects for the financial sector,” he said.

For now, investors will track the RBI's policy stance, its growth and inflation outlook, crude oil prices, global bond yields and foreign fund flows for the next market direction.

(Disclaimer: The views, opinions, recommendations, and suggestions expressed by experts/brokerages in this article are their own and do not reflect the views of the India Today Group. It is advisable to consult a qualified broker or financial advisor before making any actual investment or trading choices.)

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