Shares of banks erased initial losses following the 25 basis points increase in the repo and reverse repo rates by the Reserve Bank of India on Friday evening. Bank stocks fell on concern a rise in rates would hurt earnings and also decrease the value of their bond portfolio.
Stock brokers say concern over RBI increasing rates or poor rainfall is beginning to be discounted and there is optimism on India’s economic growth.
Friday’s increase was the third rate increase by RBI since March, stretching the rise in repo and reverse repo rates by 75 basis points so far this year.
Despite lower trading volumes on Monday there were hardly any investors taking a short position on bank stocks, a broker said. Volumes were lower than usual because of a countrywide strike by opposition parties protesting rise in prices.
Punjab National Bank, the biggest gainer among bank stocks in the Bankex index, closed 2.7 per cent higher to Rs 1,074.05 after opening 1.6 per cent lower.
Bank of India ended 2.1 per cent higher after slipping 0.4 per cent. ICICI Bank was little changed at Rs 841 after dipping 1.2 per cent.
