The Bank-Nifty index hit fresh life-time high led by PSU banks

Stock indices rallied on Monday on the eve of second bi-monthly monetary policy announcement as market participants expect that the Reserve Bank of India (RBI) is likely to maintain status quo on rates.

The benchmark Bombay Stock Exchange (BSE) 30-share Sensitive Index (Sensex) surged by 467.51 points or 1.93 per cent to close at 24684.85.

Indicating a broad-based rally, the mid cap stocks and small cap stocks on BSE gained by 2.16 per cent and 2.01 per cent respectively.

On the National Stock Exchange (NSE), the 50-share Nifty closed at 7362.50 with a gain of 132.55 points or 1.83 per cent.

“After taking a breather and snapping a three-week rally in the previous week, the equity markets made a comeback as the benchmark indices gained by almost two per cent in a single day.

The Bank-Nifty index hit fresh life-time high led by PSU banks on reports that the government is working on a holding company structure for recapitalisation of state-run public sector banks,” said Amar Ambani, Head of Research at IIFL.

Shares of companies related to insurance business surged up to 10.5 per cent following reports that the Finance Ministry was contemplating raising FDI cap in the sector from 26 per cent to 49 per cent with some riders.

Reliance Capital shares rallied 10.41 per cent, while Max India rose by 10.05 per cent on the BSE. Shares of Bajaj Finserv gained 3.15 per cent, while Religare Enterprises was up 1.97 per cent. The Reserve Bank of India policy, due to be announced on Tuesday, would be closely followed by markets.

“We expect the central bank to neither hike nor cut rates. The RBI has made it clear that controlling inflation would be its main priority and considering the consumer price index (CPI) trend in last two months, the chances of a rate cut appear bleak,” said Kiran Kumar Kavikondala, Director & CEO, WealthRays Securities. According to Mr. Kavikondala, the argument of cutting rates to stimulate growth may not be taken by the RBI this time around as the threat of a weak monsoon due to El Nino looms which has the potential to trigger inflation with a rise in prices in food items.

As investors were keenly awaiting the RBI’s policy announcements, the rupee weakened against the U.S. dollar and closed at 59.15 a dollar compared to 59.10 on Friday.

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