Banking shares led the gains Tuesday on rising hopes of twin cuts in the repo rate and the cash reserve ratio at the RBI meeting on June 18.
State Bank of India chairman Pratip Chaudhuri advocated a cut in the cash reserve ratio (CRR)—the portion of deposits that banks are required to keep with the central bank—for boosting growth.
"We expect the RBI to cut CRR by 1 per cent...It will ease liquidity significantly and lower interest rate," Chaudhuri said.
Data showing industrial output grew a weaker-than-expected 0.1 per cent in April from a year earlier, added to the case of more aggressive action from the RBI, traders say.
The poor industrial output numbers are another indication of the slowdown in the Indian economy. Earlier, GDP growth in the March quarter slowed down to a nine year low.
The Bank Nifty traded 1.5 per cent higher, outperforming the broader Nifty index, which gained 1.2 per cent at 02.45 p.m. It regained the 10,000 mark, which is a crucial support.
Public sector banks like Punjab National Bank (3.6 per cent) and Canara Bank (3.2 per cent) saw strong buying interest. Among private lenders Yes Bank (2.3 per cent) and Axis Bank (1.9 per cent) were the big gainers.
"Most likely, there will be a 25 basis point cut on CRR and repo rate but it's not clear if that will please markets... Markets will be happy with a 50 basis point rate cut," Rajesh Baheti, MD of Crosseas Capital Services told NDTV Profit.
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