PSU banks turn top gainers on hopes of repo rate cut, FY20 fund infusion

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PSU banks topped the buying list on June 4 as most experts on the Street expect Monetary Policy Committee to go for a rate cut on June 6, the last day of the three-day meeting.

Oriental Bank of Commerce, Union Bank, Syndicate Bank, Allahabad Bank, Bank of India, Canara Bank and Bank of Baroda shares gained 3-7 percent, which resulted into 2 percent rally in Nifty PSU Bank.

The fund infusion in FY20 by the government also lifted sentiment. The government is expected to infuse Rs 40,000 crore in public sector banks (PSBs) in FY20, according to a report by The Economic Times.

The move will help state-run lenders improve their balance sheets and enable them to boost lending. The announcement is likely to be made when the Budget is presented on July 5, the report said.

In addition, the Monetary Policy Committee will announce its interest rate decision, and economic growth and inflation forecast on June 6. Most experts expect the committee may go for a rate cut, but the question is the quantum of the cut.

According to them, 25 bps repo rate cut seems to have already priced in by the market, but if it is 50bps or more along with strong liquidity measures then there could be a rally in rate sensitive stocks.

“Inflation control has been a major success in the last five years. Inflation is now below 4 percent. A rate cut of at least 50 bps is also very much expected. It will be a positive for rate sensitive sectors,” Mohit Ralhan, Managing Partner & CIO at TIW Private Equity told Moneycontrol.