Indian shares rose for a second straight day on Monday to their highest close in a month led by gains in rate-sensitive stocks such as HDFC Bank, pricing in at least a 25 basis point rate cut in the upcoming policy on May 3. The Reserve Bank of India is likely to cut interest rates next week for a third time this year, drawing comfort from a fall in inflation as it seeks to help lift the economy from its lowest growth in a decade, according to a Reuters poll.
Thirty-seven of 42 analysts polled last week expect the central bank to cut the repo rate by 25 basis points to a two-year low of 7.25 percent when it holds its policy review next week. Analysts also expect the RBI to sound more optimistic than its March policy as a slump in gold and crude prices is seen helping narrow India's current account deficit. "We expect 50 basis points rate cuts in the remainder of this year with 25 bps expected in the upcoming policy," said Pankaj Pandey, head of research at brokerage ICICI Direct.
Larger rate cuts would depend on what happens on the inflation front, added Pandey. The benchmark BSE index rose 0.81 percent, or 153.37 points, to end at 19,169.83, marking its highest close since March 18. The broader NSE index rose 0.89 percent, or 51.30 points, to end at 5,834.40, closing above the psychologically important 5,800 level.
Expectations that Indian lenders' January-March earnings would beat estimates, and a gain in European stock markets on a possible resolution to Italy's long-running political crisis, also helped Indian stocks. Rate sensitive stocks such as HDFC Bank rose ahead of quarterly results later in the week, aided also by hopes of a rate cut by the RBI.
HDFC Bank rose 3.7 percent and ICICI Bank gained 2.3 percent. Tata Motors Ltd gained 1 percent after unit Jaguar Land Rover Ltd's China chief said it aims to increase its sales by 20-30 percent this year in China, its biggest market. Shares in Maruti Suzuki India Ltd rose 1 percent on hopes a weaker yen would help improve margins by reducing the costs of importing auto parts from Japan.
The yen slipped against the dollar towards the 100 level on Monday, after the Group of 20 countries refrained from criticising Japan's reflationary policies that have significantly weakened its currency. Titan Industries Ltd rose 5.5 percent after gold jumped more than 2 percent on Monday after a rebound above $1,400 ignited technical buying. India's Reliance Communications Ltd shares rose 13.5 percent, to mark their highest close since March 14, after the company said in a statement on Saturday that Samena Capital, along with certain other PE funds, is doing due diligence in relation to the acquisition of unit Reliance Globalcom Ltd.