Nifty PSU Bank Index Powers Ahead on Repo Rate Cut Hopes

While most indices, including the benchmark index, struggled to hold ground, the Nifty PSU Bank index bucked the trend, trading over 2% higher amid growing expectations of a rate cut by the RBI’s Monetary Policy Committee, which is scheduled to meet later this week to review the repo rate.

Shares of Punjab & Sind Bank, Uco Bank, India bank, Central bank, Union Bank Indian Overseas Bank, and Maharashtra Bank were up 4-7% and were charging up the gains in the sectoral index. They collectively helped the index dodge an overall muted market sentiment.

Nifty PSU Bank index has been rising for two consecutive sessions now and has outperformed the broader Nifty Bank index. Expectations of a third consecutive rate cut by the MPC zoomed after the Q4 GDP data managed to break some records. According to the data released by the government on Friday, GDP grew 7.4% in Q4 of FY25, while its full GDP grew 6.5% on year.

Not only GDP, but also inflation data has given additional room for the RBI to ease its stance. India’s retail inflation eased to 3.16% in April from 3.34% in March, driven by a sharp fall in prices of vegetable and pulses.

Barclays India said it expects the RBI to cut benchmark rates and maintain the 'accommodative' stance. Factors such as lower-than-expected inflation outcome and outlook, underwhelming high frequency activity data for April, in-line GDP growth print for and modest MSP increases, could lead to RBI MPC delivering a third successive repo rate cut of 25 basis points on June 6, according to reports.

The MPC had already reduced the repo rate by 25 bps each in February and April after keeping it steady for 11 consecutive meetings. The rate cut announced in February was the first in almost five years.

Also according to some reports, PSU bank stocks saw buying interest as many lenders declared better-than-expected Q4 earnings for FY25, while valuations remain in the comfort zone compared to the overall market.