Nifty Bank hits new milestone, crosses 56,000 ahead of RBI MPC

The Nifty Bank index achieved a historic milestone by surpassing the 56,000 mark for the first time, driven by investor optimism ahead of a potential interest rate cut by the Reserve Bank of India (RBI). On Tuesday morning, the index reached a peak of 56,161.40, marking a significant achievement in the Indian financial markets. This surge was primarily fueled by strong buying activity in select banking stocks, as investors anticipated favorable monetary policy decisions from the RBI.

Smaller banks, including AU Small Finance Bank, Federal Bank, Punjab National Bank, HDFC Bank, and IndusInd Bank, experienced gains ranging from 0.4% to 1.2%. This optimism was underpinned by expectations of a rate cut, which is anticipated to be announced during the RBI's policy meeting on June 6. However, the initial gains were short-lived, as the index slipped by 0.1% by mid-morning due to profit booking and weakness in major banking stocks.

Heavyweights such as ICICI Bank, Axis Bank, and Kotak Mahindra Bank contributed to the decline, each falling by up to 0.9%. Despite this pullback, the Nifty Bank index remains one of the top-performing indices in 2025, having gained 10% since the start of the year and delivering a 9.7% return over the past 12 months. The anticipation of an RBI rate cut is not unfounded, as the central bank has already reduced the repo rate twice this year, bringing it down from 6.5% to 6%.

Market optimism and economic growth

Analysts widely expect another 25 basis point cut in the upcoming Monetary Policy Committee (MPC) meeting. This expectation is bolstered by declining inflation and supportive macroeconomic conditions, which have created a conducive environment for further monetary easing. The robust performance of the Indian economy further fuels investor confidence. In the March quarter of FY25, India's GDP grew by an impressive 7.4%, marking the strongest growth of the year.

The overall GDP growth for FY25 stood at 6.5%, reaffirming India's status as the fastest-growing major economy in the world. This economic momentum has further fueled investor confidence in the banking sector, which is highly sensitive to interest rate changes. Dr. VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, commented, "Since the MPC is expected to cut the policy rate by 25 bps in the meeting on the 8th, rate-sensitives are likely to be favored in the coming days."

Brokerage firm SBI Securities echoed this sentiment, predicting a 50-basis point rate cut in the June '25 policy. They noted that such a "jumbo rate cut could act as a counterbalance to uncertainty." The firm also pointed out that banks have already started reducing interest rates on savings accounts, which could further stimulate economic activity. The broader Indian equity markets, however, opened slightly lower on Tuesday, with both the Sensex and Nifty indices trading in the red.